Thames Water investor USS pension fund to be quizzed by watchdog over stake

Obtain free Utilities updates

We’ll ship you a myFT Each day Digest e-mail rounding up the newest Utilities information each morning.

The UK’s largest pension scheme is to face questions from the regulator over its funding in Thames Water, the troubled utility.

A gathering between The Pensions Regulator and the £90bn Universities Superannuation Scheme, which is likely one of the largest traders in Thames Water with a 20 per cent stake, will occur as early as this week, in line with folks conversant in the state of affairs.

Whereas the assembly has been lengthy anticipated, questions across the USS’s stake within the water monopoly might be on the agenda, they added.

The regulator’s intervention comes days after the revelation that the UK authorities is engaged on contingency plans for a doable short-term nationalisation of Thames Water, which has a £16bn debt pile and is searching for a minimum of an extra £1bn capital injection from its traders. These embody British and worldwide pension funds, together with USS, which serves greater than 500,000 members and whose sponsoring employers embody among the UK’s most prestigious “crimson brick” universities.

TPR has a statutory responsibility to make sure that schemes are effectively run, together with round their funding choices, in order that pensions will be paid.

The USS is presently within the strategy of enterprise a proper examine of its monetary place, generally known as a valuation.

“I think the regulator will need to examine whether or not the Thames Water holding will influence the scheme’s funding place,” mentioned John Ralfe, an impartial pensions skilled.

The Pensions Regulator mentioned: “We’re in common contact with the trustee however don’t touch upon these discussions.”

The USS declined to remark.

Final week, the USS mentioned it didn’t count on occasions surrounding Thames Water to have a “materials influence on the funding place or contribution charges popping out of the 2023 valuation, nor on the safety of members’ promised pensions”.

The regulator’s curiosity additionally comes days earlier than Jeremy Hunt, the UK chancellor, is because of unveil wide-ranging plans to encourage pension schemes, equivalent to USS, to direct additional cash into areas that can increase financial development.

Ministers are eager for the UK’s private and non-private sector pensions, which mix to handle about £3tn in property, to take a position extra broadly in riskier, however probably larger returning, areas equivalent to early-stage unlisted corporations, infrastructure and personal fairness. These are seen as riskier than publicly traded property, due to their complexity and lack of transparency over charges and expenses.

The USS signalled its conditional help final week for Thames Water, a personal firm, saying it had given its backing to the corporate’s turnround plan, and supported its long-term technique.

“We stay of the view that, with an applicable regulatory atmosphere, the long-term goal of repairing necessary UK infrastructure and paying pensions to our members are in sturdy alignment,” it mentioned.

USS first turned an investor in Thames Water in 2017, attracted by the chance to help the long-term funding wants of the enterprise. 

In 2021, the pension fund purchased an extra 8.8 per cent stake, bringing its whole holding to close 20 per cent. In its most up-to-date annual report, the USS mentioned investments in “long-term, secure, predictable, regulated and inflation- linked property” had been “key” to fulfilling its major responsibility to pay the pensions promised to members.

The monetary particulars of the 2021 transaction weren’t disclosed by USS, however the deal got here months earlier than profit cuts had been imposed on tens of 1000’s of USS members, due to a £14bn funding shortfall.

On Tuesday, the chief government of the regulator Ofwat advised a Home of Lords committee that Thames Water wanted billions of kilos extra in money at a time when there’s “enormous resistance” from traders to place more cash into the sector.