Stephen Timms, chair of the Work and Pensions Committee, has asked the £710mn Water Companies Pension Scheme to explain the transfer of the Bristol Water section’s surplus over to its sponsor.
The section is being wound up, with an annuity having been bought in June 2018 with Aviva to insure members’ benefits. It has an estimated surplus of around £12.1mn, which is set to be transferred to Bristol Water.
The committee has been contacted by scheme members who are concerned about the transfer of the surplus.
According to a letter sent on April 19 from Timms to David Sankey, trustee of the Water Companies Pension Scheme, members have said that a provision in the section’s rules allow for the surplus to be used to boost members’ benefits. There were no discretionary increases to members’ benefits last year.
It is not uncommon for scheme rules to give trustees a discretion – or even a duty in some cases – to use surplus assets to improve members’ benefits on a winding up
John Gordon, Ashurst
Bristol Water’s pensions were the centre of acrimony in 2021, with workers announcing strike action in response to a pay freeze and no rise in pension contributions from the company.
Surplus transfer concerns
The Bristol Water section closed to the future accrual of defined benefit and defined contribution benefits in March 2016.
Its trustees consulted with members and subsequently removed inequalities in guaranteed minimum pensions via a conversion effective from March 1 2021. It then agreed with Bristol Water to begin winding up the section, which is scheduled to be completed this year.
In the letter, Timms asked Sankey to justify the transfer of the £12.1mn surplus to Bristol Water.
Members have told the committee that “there is a provision in the section’s rules stating that the trustee ‘may, in consultation with Bristol Water PLC, use any surplus to augment members’ benefits if and to the extent that it considers it just and equitable to do so’”, Timms wrote.
“Their understanding is that, despite this, the trustees decided to transfer the remaining funds to the employer without, in their view, adequate consultation or explanation.”
Timms asked Sankey to explain whether the section’s rules allowed for using the surplus on wind-up to increase benefits, and whether this option had been considered.
The trustee chair was also asked to explain the rationale for not exercising this power, whether members were consulted, and to explain how member-nominated trustees were involved in the running of the scheme.
“My committee rarely considers individual cases except where these illuminate more general policy and operational matters,” Timms continued.
“In this instance, I am considering asking my committee to discuss whether the legislative protections available to members of pension schemes regarding rights over surpluses and their ability to elect trustees are effective and sufficient.”
Could workers strike in response?
The case has attracted the attention of the Pensions Regulator. A spokesperson for the watchdog said that it had entered discussions with the trustees of the Water Companies Pension Scheme’s Bristol Water section.
There is precedent among Bristol Water employees for strike action in response to the handling of their pension arrangements.
In April 2021, the GMB union announced that its members within the Bristol Water workforce would go on strike for one day over the pay deal offered by the company and its decision not to increase pension contributions.
John Gordon, counsel at Ashurst, said that “it is not uncommon for scheme rules to give trustees a discretion — or even a duty in some cases — to use surplus assets to improve members’ benefits on a winding up”.
“In this context, the rights of employers and members to surplus assets are subject to a ‘rules lottery’ and will depend on the wording of provisions, which in most cases were drafted many years ago,” he observed.
Any surplus refund boils down to which party should benefit from any money left in the scheme once all benefits have been provided in full, Gordon continued.
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“An employer might argue that, once all benefits have been secured, it has fulfilled its promise to pay pension benefits to members and should therefore receive any surplus,” he said.
“However, members…have a right to question whether a decision to refund surplus to the employer has been taken in line with the scheme rules and relevant legislation.”
Bristol Water has been contacted for comment. The Water Companies Pension Scheme declined to comment.
