Regulatory and legislative flexibility should be maintained in the "years of recovery" expected to follow the current Covid-19 crisis, Freshfields Bruckhaus Deringer (Freshfields) has said.

The firm stated that whilst initial guidance from The Pensions Regulator (TPR) had been “largely helpful and pragmatic”, this would need to be maintained during the “years of recovery from the crisis”, adding that any shifts to a "flexible approach" should be reconciled with the new funding regulatory framework.

Freshfields stated: “[The current] context of heightened legal risks and regulatory scrutiny is likely to make it more challenging to deal with the impact of larger deficits, unless there is a shift in approach.

“Partly it is a question of whether TPR is able to respond with appropriate flexibility and understanding of the pressures on businesses.”

However, the firm emphasised that the regulator must “work within its governing legal regime”, with recent easements centering around a shift in enforcement rather than statutory duties.

In particular, Freshfields highlighted the “vaguely defined criminal sanctions in the Pension Schemes Bill”, arguing the need for a collective shift from both the regulator and government amid the Covid-19 pandemic.

It added: “The government and parliament should think carefully about the effect of some of their proposed changes to pensions law in light of the crisis.

“In particular, they should be asking whether now is an appropriate time to introduce new, ill-defined criminal penalties of uncertain scope that would apply to any person deemed to have placed accrued pension scheme benefits at risk."

The firm warned that sharp increases in the funding deficits of UK defined benefit (DB) pension schemes are likely to affect forthcoming actuarial valuations ‘for some time to come', with 10 per cent of companies already expected to suspend deficit reduction contributions.

It also added that increased funding costs are likely to be a “drag" on recovery for many employers, in turn also limiting investment and economic growth.

Furthermore, the firm warned that pension scheme funding could face a "long after-effect", with scheme funding adversely affected by low interest rates for years after the 2008 financial crisis.

Freshfields emphasised however, that the impact of the current crisis will likely be more severe than that felt from the 2008 financial crisis due to the widespread effect on employers’ businesses, calling for an long-term shift in approach to support schemes as a result.

The firm recently also provided 'in practice' guidance for trustees and sponsors amid the Covid-19 pandemic, building on initial TPR and government guidance.

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