United Utilities slashes deficit with DB changes
UK - United Utilities claims it reduced its pension deficit by approximately £90m (€104m) through a number of changes to its defined benefit (DB) schemes.
The water company consulted on a number of changes to the schemes that came into force on 1 April 2010, including a cap on the increase in pensionable earnings, an increase in normal retirement age in line with the state pension age, a rise in employee contribution rates and adjustments to the accrual rate.
Latest figures from show that United Utilities pension deficit fell from £395m in September 2009 to £271m on 31 March 2010.
In its full year results for 2009, the water company claimed this more "sustainable" approach had been agreed with trade unions and meant reductions in both future service cost and the future funding risk to the company. For example it is estimated the reduction in service cost for 2010/11 will be £7m, while "these amendments have also resulted in a reduction of £92m to the group's pension deficit".
However, United Utilities admitted "the lower risk investment strategy is likely to reduce investment income" and confirmed that the company, alongside the trustees, "continues to monitor the investment strategy for the pension schemes, including the group's exposure to investment risks".
In an updated scheme booklet for members on the United Utilities Pension Scheme (UUPS) website, the changes to the DB scheme include a change in the accrual rate from 1/60th to 1/80th of final salary, while employee contributions are expected to increase to 7.5% from 11 August 2010. Pension increases for retired members will be inline with the Retail Prices Index, but capped at a maximum of 5%.
United Utilities argued the changes to the DB schemes "have significantly reduced the company's pension deficit, reduced the future service cost and reduced future funding and company's pension provision on a much more sustainable footing".
The water company has a number of pension schemes, both DB and defined contribution, following the decision to close the DB schemes to new employees from October 2006.