Teddington Weir , the start and end of the tidal Thames
Frances Coppola tells the full desperate story of Thames Water’s over-financing; – well almost the full story.
I will continue with a few comments of mine own , but first a precis of Frances’ epic explanation which you can read here.
Thames Water’s operating capital is profitable, it made around £46m last year and it paid a dividend. But the shareholders, who include pension fund USS, never got to see the dividend.
Frances asks “where has the money gone”
She explains that it got swallowed in a labyrinth of interconnected companies , none of which trades .all of whom exist merely to pass money to bondholders which include the architect of the mess , the “kangaroo vampire” McQuarrie.
The pension angle
Frances touches on the pension angle but I can give more information and ask the trustees of the pension scheme why they are not talking with external sponsors ready and willing to turn the pension scheme from problem to a tiny part of the solution to Thames’ many headaches.
£27.1m of the money generated from bills paid by its customers was paid by Kemble Water Eurobond Ltd to the Trustees to meet a deficit in Thames Water’s two DB pension schemes.
But the pension schemes need not have demanded this money if they had taken up an offer of c0 sponsorship that has been on the table for some time.
The idea of co- sponsorship is that a capital buffer lifts the scheme out of deficit, enables the scheme to invest for the future , turns off the demands to the sponsor and ensures that members do not risk a haircut in pensions by falling into the PPF.
Thames Pension Trustees;- swimming against the tide
There was a time, indeed until quite recently, when capital backed journey plans were seen as an extension of the “vampire” , not least by Regulators intent on enforcing deficit contributions at all cost (to the corporate’s operations, research and development), This has changed.
The tide that encouraged trustees to touch it out has turned and the Pensions Regulator’s latest guidance, issued in the past two weeks , actively encourages schemes like Thames Water’s to engage with the concept of a capital backed journey plan. The scheme’s actuaries are equally encouraged to do so under the guidance of TAS 300 a revised technical standard for the pension sector, issued by the IFOA
Money flows like water. The Thames below Teddington lock is tidal, water levels can vary by as much as 24 feet. Even with the Thames barrier, the tidal Thames can flood, above Teddington it is constant threat to towns and villages in the Thames Valley.
The management of the Thames Water company’s finances and those of the Thames itself need the co-operation of a wide variety of stakeholders. Pensions are a small part of Thames Water’s problems but Capital Backing can offer an easy first step away from the misery of its £18bn debt-pile.
