The UK’s pensions regulator has set out key principles for defined benefit (DB) trustees to keep in mind when considering requests from employers to defer deficit repair contributions (DRCs), which it said “may be appropriate” given the COVID-19 circumstances.
Publishing a wide-ranging update for trustees, employers and administrators in relation to the impact of the virus as well as “swift and severe” measures adopted to contain it, the Pensions Regulator (TPR) said there had “understandably” been a rise in the number of employers requesting deferral of DRC payments.
It urged DB trustees to consider any request carefully to ensure that any support they approved was “part of a co-ordinated and fair response across key stakeholders”.
“You should get clarity on the timing for requests, challenging deadlines which are unnecessarily short and making sure you receive adequate information to make informed decisions,” said TPR.
Trustees should establish the need for any deferral by understanding the employer’s cashflow and drivers for the request.
The regulator said employers should be preparing 13-week cashflows where there was a significant impact, and that trustees should ask their sponsoring employers about key payment dates in the next three months that would affect the business.
Trustees also needed to ensure that other stakeholders besides the pension scheme would be playing their part. Banks, for example, should be supporting the business rather than withdrawing borrowing facilities.
Where other parties were strengthening their access to the employer’s assets through security, trustees should ensure that the pension scheme was given a fair share of the new security.
Trustees should also consider a flexible ability to restart making DRCs, ensuring that any suspension had an end-date but also incorporating triggers to restart if trading returned to normal.
Bob Scott, senior partner at LCP, said: “It may be that firms facing particular cash-flow challenges in these extraordinary times will be looking for some delay in making planned contributions to their pension scheme.
“But trustees and regulators will seek to ensure that firms explore other avenues to help with cashflow, including reviewing dividend levels and executive bonus payments as well as taking up government offers of help.”