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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 accordance with folks conversant in the scenario.
Whereas the assembly has been lengthy anticipated, questions across the USS’s stake within the water monopoly will likely 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 non permanent nationalisation of Thames Water, which has a £16bn debt pile and is in search of at the least 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 a few of the UK’s most prestigious “purple brick” universities.
TPR has a statutory responsibility to make sure that schemes are properly run, together with round their funding choices, in order that pensions will be paid.
The USS is at the moment within the means of enterprise a proper test of its monetary place, often called a valuation.
“I think the regulator will wish to test whether or not the Thames Water holding will affect the scheme’s funding place,” stated John Ralfe, an impartial pensions knowledgeable.
The Pensions Regulator stated: “We’re in common contact with the trustee however don’t touch upon these discussions.”
The USS declined to remark.
Final week, the USS stated it didn’t count on occasions surrounding Thames Water to have a “materials affect 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, comparable 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 belongings, to take a position extra extensively in riskier, however probably increased returning, areas comparable to early-stage unlisted firms, infrastructure and personal fairness. These are seen as riskier than publicly traded belongings, due to their complexity and lack of transparency over charges and costs.
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 acceptable regulatory atmosphere, the long-term goal of repairing essential UK infrastructure and paying pensions to our members are in sturdy alignment,” it stated.
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 stated investments in “long-term, secure, predictable, regulated and inflation- linked belongings” have 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 have 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 informed a Home of Lords committee that Thames Water wanted billions of kilos extra in money at a time when there’s “large resistance” from traders to place extra money into the sector.
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