The deficit of the Anglian Water and United Utilities defined benefit pension schemes will have to be considered in the companies’ dividend policy, the water regulator Ofwat revealed.
In response to a probe launched by Labour MP Frank Field, chairman of the Work & Pensions select committee, to the announcement of the closure of the schemes to future accrual, Rachel Fletcher, chief executive of Ofwat, said the regulator has "no direct role in regulating the pension arrangements water companies have in place".
However, she revealed that the regulator launched a programme of reforms for the water sector, which will include companies' dividend policies.
She said: "Part of this package involves an expectation that boards first meet their obligations to customers and take fair account of employee interests before making dividend payments, and that executive bonuses should be linked to delivery of exceptional performance for customers."
Trade unions alerted to the closure of the Anglian Water and United Utilities schemes, with Unite stating that "huge profits made by these two companies are heavily skewed toward the shareholders – with not enough investment going into the UK's water infrastructure and also to maintaining the pension schemes".
A thousand Unite members employed by United Utilities in the north west of England took industrial action on 1 April, in a pensions' dispute which could see them thousands of pounds worse off in retirement, the union said.
Their final salary pension scheme is being replaced by a hybrid plan. Industrial action is currently suspended for further talks to take place, Unite added.
Workers at Anglian Water have accepted the changes to the scheme, even though Unite warned that some staff will see their pension pots reduced by up to £100,000.
The utility company, which is the largest geographic water company in England and Wales, has said it will close its DB schemes because the water regulator Ofwat has told it to save money.
In his letter to Ms Fletcher, Mr Field said: "Water and sewerage companies are natural monopolies which are subject to no competition.
"They hold a privileged position as long-term licence-holders enjoying large and predictable cash flows from a captive consumer base.
"There appears to be no effective restraint on these firms' policy of distributing massive sums to shareholders while cutting the pension benefits that their employees are counting on for their retirement."
He pointed out that the last five annual reports from Anglian Water showed after tax profits of £1.6bn, of which £0.8bn was paid out in shareholder dividends.
United Utilities made £1.6bn in after tax profits during the same period, with £1.2bn going to shareholders.
Ms Fletcher said: "We do not expect that decisions by companies to close their schemes to future accruals will reduce their exposure to funding the deficit repair costs as they stood when our approach was agreed.
"However, we will continue to monitor developments to ensure that customers are not funding costs which should be borne by shareholders."