Retirement benefits

Pension arrangements for former employees have historically been provided through the Company's membership of the Water Companies' Pension Scheme (WCPS), which provides defined benefits based on final pensionable pay. The Company's membership of WCPS is through a separate section of the scheme. On 7 June 2018 the Trustee of the Bristol Water Section of the WCPS purchased a bulk annuity policy to insure the benefits for the members in the section. Following this, the method for valuing the liabilities of the pension scheme has remained the same.  The pension liability, following the purchase of the bulk annuity policy, matches the value of the insurance asset.

The gross pension surplus of £12.5m at 30 September 2024 (30 September 2023 £12.6m) relates to the market value of assets still held by the scheme other than the annuity policy/insurance asset.

The Company believes that it has an unconditional right to a refund of surplus and that the gross pension surplus can be recognised. This benefit is only available as a refund as no additional defined pension benefits are being earned. Under UK tax legislation a tax deduction of 25% is applied to a refund from a UK pension scheme, before it is passed to the employer. This tax deduction has been applied to restrict the value of the surplus recognised for this scheme. The process to buy out and wind up the scheme continues and the Trustee has indicated its intention to return the surplus to the Company.  The buy-out of the section is expected to be completed within the next 12 months and therefore the surplus has been recognised as a current asset on the balance sheet.

Retirement benefits (continued)

In June 2023, the High Court handed down a decision (Virgin Media Limited v NTL Pension Trustees II Limited and others) which potentially has implications for the validity of amendments made by schemes, including the WCPS, which were contracted-out on a salary-related basis between 6 April 1997 and the abolition of contracting-out in 2016. This decision was upheld by the Court of Appeal in August 2024. There is potential for legislative intervention following industry lobbying efforts that may retrospectively validate certain rule amendments that would otherwise be held void where the requirements of section 37 were not met. However, the Company has engaged with the Trustees for the WCPS who have confirmed that based on the governance processes in place and an initial review of significant deed changes during the period in question, there is no reason to believe, at this stage in their review, that the relevant requirements were not complied with in relation to the Scheme with regard to the relevant period in question. Given that there is no indication at this stage of non-compliance with the relevant requirements, the scheme's valuation as at 30 September 2024 does not reflect potential additional liabilities arising from the Virgin Media case.