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Pension Funds

U.K. water utility agrees to boost pension contributions

Southern Water will increase contributions and shorten its recovery plan for its Southern Water Pension Scheme, West Sussex, England, following an investigation by the U.K. Pensions Regulator.

The regulator said in a news release Sunday that it took action against water and wastewater services provider Southern Water over what it believed to be an "imbalance between the funds contributed to the (pension fund) and the level of dividends paid to shareholders in 2016 and 2017."

As of March 31, 2016, the fund had a 252 million ($323.1 million) deficit. Fund assets and more recent deficit figures were not available. The fund was frozen in 2005.

TPR's work helped lead to a settlement resulting in Southern Water paying 50 million into the fund over a shorter period than stated in an earlier agreement. Late this summer, the trustee of the fund submitted a proposal that addressed the regulator's long-held concerns over the pension fund, and the regulator agreed to stop legal proceedings.

A report published by TPR said Southern Water had agreed to "significantly increased" deficit recovery contributions with a recovery period ending in 2029 — one year earlier than under a period agreed to in 2013. Further details on contributions under the new and old plans were not available.

The report said Southern Water could have paid off the deficit sooner than expected, especially as it paid 190 million in dividends in 2016 and 2017. Regulatory proceedings were begun by TPR and a warning notice that the regulator would begin exercising its powers was issued in June 2017.

"During our lengthy investigations into Southern Water it became clear that in our view the pension scheme was not being treated fairly," said Nicola Parish, executive director of frontline regulation at TPR, in the release. "We considered that Southern Water could afford to clear the scheme's deficit much more quickly without negatively impacting the company's growth prospects."

Southern Water has also introduced a dividend sharing mechanism: if dividends are paid to shareholders above a certain threshold, the firm will increase deficit contributions.

TPR's report is available for download on its website.

A statement provided by a Southern Water spokeswoman said: "We are pleased to have completed negotiations for our final salary pension scheme and an updated plan is now in place. A new management team are now leading the transformation of Southern Water and are committed to dealing with historic issues such as this."