The chairman of parliament’s work and pensions committee has accused water companies of paying “massive sums” to shareholders while cutting their workers’ pension benefits.
Frank Field, who has earned a high profile in recent years because of his crusade on behalf of the BHS pension scheme’s members, has raised with Ofwat chief executive Rachel Fletcher plans by Anglian Water and United Utilities to close their defined benefit scheme to future payments.
The changes to the accrual arrangements, which unions claim could cost younger workers up to £10,000 per annum in lost retirement income, have already resulted in hundreds of staff striking at United Utilities last month. Staff at Anglian are also planning industrial action to protest against their company’s pension shake-up plans.
Field highlights “the Anglian Water schemes currently have an £86 million deficit on an IAS19 accounting basis while the United Utilities pension scheme has a £220 million surplus on this basis”.
Ofwat granted water companies leeway in 2014 to recover some of the costs of deficit repair contributions through customers’ water bills until the early 2020s but noted that “there are strong arguments for shareholders to bear these costs in future.”
Field writes to Fletcher that over the last five years, United Utilities has reported total after-tax profits of £1.6 billion, of which it has paid £1.2 billion in dividends to shareholders.
Over the same period, Anglian has forked out half of its £1.6 billion worth of after tax profits in shareholders’ dividends, the letter says.
Field also quizzes Fletcher on Ofwat’s view of the proposals by Anglian and United Utilities to close their defined benefit pension schemes while continuing to make large payments to shareholders.
Field writes: “There appears to be no effective restraint on these firms’ policy of distributing massive sums to shareholders while cutting the pension benefits that their employees are counting on for their retirement.”
The veteran Labour MP adds that water companies are “natural monopolies”, which enjoy “large and predictable cashflows” from a “captive consumer base”.
He asks if Ofwat has powers to regulate the division of water company resources between shareholder dividends, executive remuneration and pension scheme funding.
A spokesperson for United Utilities, said: “Many companies have found that final salary pension schemes have become much more expensive to fund and United Utilities is no exception. The costs of keeping our company scheme open are predicted to keep on rising to unsustainable levels.
“The unions helped to shape the final version of the new scheme. Rather than scrap the defined benefit scheme as planned, we agreed to introduce a hybrid scheme, which will cost us considerably more. So, we have made considerable concessions already and hope that the unions will show a similar desire to compromise.”
Ofwat is expected to formally respond to Field shortly.