COVID-19 - Pensions

The COVID-19 pandemic has presented pension scheme trustees with some unprecedented financial, legal and practical risks. 

In this pensions update we:

  • summarise the guidance recently provided by the Pensions Regulator (TPR) on those risks; and
  • suggest actions that trustees could take in order to manage those risks.

We also briefly consider the principles which TPR suggests trustees should keep in mind when considering a sponsor request to defer the payment of deficit repair contributions (DRCs) to the scheme.

TPR guidance on COVID-19 risks 

TPR now has a dedicated web page which provides guidance on COVID-19 and its impact on pension schemes.

The page is in its infancy and will be updated over the coming weeks in response to feedback, government action and the evolving risks. In the meantime, the overriding message is that trustees must be alive to the key risks that could have significant consequences for the scheme and members. Trustees’ activities should be focused on mitigating those risks. For example, they should ensure that: 

  • scheme administrators have the resources to ensure benefits are paid on time.  Trustees/administrators should contact TPR immediately if it is not possible to pay benefits.
  • the risk of opportunistic scams is minimised - sponsor/financial markets instability might make members more susceptible to the lure of “safe haven” arrangements.
  • sponsors continue to contribute to their schemes.  TPR recognises that this is a challenging time for sponsors and, in recognition of that, intends to take a proportionate and risk-based approach towards enforcement decisions which aim to get employers back on track.

The guidance is also clear that TPR is temporarily suspending its regulatory initiatives and postponing the publication of its Corporate Plan, long-term strategy and consultation on amalgamating all of its codes of practice into one single code. 

Actions for trustees

  • Business continuity plans (BCP) – Trustees should have a BCP in place which highlights action needed to maintain continued day-to-day running of the scheme and prioritises scheme activities. The scheme administrator and other service providers should be contacted to see what contingencies they have in place to ensure they can continue to operate the scheme. Trustees need to prioritise the payment of benefits, retirement processing and bereavement services.
  • Pension scam policies/procedures – Appropriate policies and procedures should be in place to ensure members who seek to transfer benefits are aware of the potential for scams. TPR is at pains to point out that members could be increasingly targeted by opportunistic scammers.  Where this might be the case, members should be urged to exercise extreme caution and visit the FCA’s “ScamSmart” webpage.
  • Scheme investments – If trustees are not already doing so, advice should be taken on the financial impact of COVID-19 on the scheme’s investment strategy. That advice should include suggestions for suitable mitigation.
  • Sponsor covenant – Trustees should also take advice on the financial impact of COVID-19 on the sponsor and covenant and seek to understand steps being taken by the sponsor to mitigate that impact. Trustees should assess, with their advisers, what steps they need to take (if any). That assessment should have regard to TPR’s recently published guidance for trustees whose sponsor is in corporate distress.
  • Insurance – Insurance policies relating to the scheme, such as life assurance, should be reviewed to see if they include any exclusions in relation to pandemics or other provisions which could limit the amount payable by the insurer. Steps should be taken to deal with any “uninsured” benefits which might arise due to these exclusions/provisions.
  • PPF levy – Any submissions required to be made to the PPF in relation to the 2020/21 PPF levy should still be made on time. At the time of writing, the various deadlines for submitting information in relation to the levy still apply, although the PPF has indicated that it may be amenable to some delays. The PPF is, however, now accepting submissions of contingent asset documents by email (rather than hard copy).
  • Emergency meeting? – It may be sensible to convene an emergency trustee meeting – remember, conference call or video call only! - in order to discuss the above issues and potential steps required to tackle them.

Sponsor request to defer DRCs

If COVID-19 has caused the sponsor to experience cash flow problems or other financial difficulties, it may ask the trustees to defer payment of its DRCs to the scheme. TPR’s guidance on sponsors in corporate distress recognises that a request to defer DRCs may be appropriate in the current circumstances. The guidance sets out a number of principles that trustees need to keep in mind when considering such a request:

  • Establishing the need – The trustees should understand the sponsor’s cashflow and the drivers for the request and ensure that payments are not going to be made to related entities or shareholders.
  • Ensuring all parties are playing their part – The trustees’ support should sit alongside other stakeholders.  For example, trustees should check whether lenders are continuing to support the sponsor rather than withdrawing borrowing facilities or, if other stakeholders are being provided with security, trustees should ensure that that the scheme is also provided with security.
  • Flexibility to restart DRCs – Any deferral of DRCs should have an end date and there should also be the ability to restart DRCs as and when trading returns to normal.
  • Advice – The trustees should take covenant and legal advice.
  • Timescales – Inevitably, the timescales for providing a decision on the sponsor’s request will be relatively short. As such, any concessions agreed by the trustees in relation to DRCs should be a short term solution. 

In addition to the above, trustees will need to regularly review the pension scheme’s cashflows to make sure there is adequate cash available to pay pensions and meet expenses as and when required.

We will continue to monitor developments and, as further guidance becomes available from the Government, TPR or HMRC, provide short updates.  In the meantime, stay safe!


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To find out more, please drop us a line.