The UK pensions regulator has published guidance urging trustees to prepare now for the possibility of sponsor distress, with COVID-19 continuing to have a profound economic impact despite government support packages.

The regulator (TPR) also said trustees should be prepared for any issues arising from Brexit.

Key points made by the regulator include that “if trustees delay putting robust scheme protections in place, other stakeholders, such as lenders, will be in a better position to exert control over and extract value from a distressed sponsor, potentially to the detriment of the scheme”.

It also highlights issues arising from mergers and acquisitions and how trustees should engage in these.

Mike Birch, TPR’s director of supervision, said: “When sponsoring employers experience financial distress or make business disposals it can cause significant risks to DB schemes and we know that sadly, in the current climate, some employers are struggling.

“The current environment is also leading to an increased level of corporate transactions, some of which are completed in response to distress.”

He added: “Trustees are the first line of defence for savers. The faster they act, the more options and greater time they’ll have to protect members’ retirements. Trustees should know the signs of distress, and preparations can be made before these signs appear.”

The pensions industry welcomed the guidance.

Mike Smedley, partner at Isio, said: “Anticipating the fraught creditor negotiations to come, The Pensions Regulator has given trustees of struggling businesses clear instructions on securing their seat at the table.”

He noted that TPR was explicit that it would not have the resources to support every trustee where the sponsor was facing distress.

“Trustees will need to look out for themselves, rather than rely on the regulator to fight their corner,” he said.

At the Association of Consulting Actuaries, chair Patrick Bloomfield said the guidance was “a useful prod to sponsors to bring their trustees into any commercial decisions that could affect the security of their pension scheme”.

“If Clause 107 of the Pensions Bill goes ahead as drafted, it will criminalise actions which undermine the security of pension schemes. There is a sense of TPR forewarning industry of what’s to come.”

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