The Pensions Regulator’s (TPR) request for trustees to resume some reporting from 1 July is tantamount to holding their feet “to the fire”, according to some in the pensions industry.

TPR has called for the restart of reporting on matters such as suspending or reduced contributions, as a means of ensuring that risks are being managed and savers protected, which the regulator said would allow it to “horizon-scan effectively”.

Commenting on the update, Isio partner, Mike Smedley, said: “The regulator, in no uncertain terms, has whipped off the comfort blanket for trustees to agree suspensions of contributions.

"From today, the regulator has made it clear that trustees’ feet will be held to the fire and produced a detailed and exacting list of specific expectations.

“The regulator has said that it expects breaches but warned that trustees will be held to account, recommending the appointment of specialist advisers in distressed situations.”

XPS Pensions partner, Wayne Segers, commented: “The economic impact of the necessary response to Covid-19 is likely to affect employers and pension schemes for a while yet.

"TPR has highlighted this in extending measures, but expects trustees to carry out more due diligence than before – especially when agreeing to reduce cash contributions.”

Segers added that this likely reflected the regulators expectation that trustees should have “adapted to managing schemes in a Covid-19 world”.

The regulator has also called for trustees to undertake due diligence on the scheme employer’s financial position before agreeing to requests for suspensions or reductions in deficit reduction contributions.

PwC partner and senior pensions adviser, Stephen Soper, said: “TPR now expects trustees to be considering the employer’s financial position, including the range of scenarios which may play out, before agreeing to a contribution deferral.

“Trustees that use their leverage to get a seat at the table in negotiations with other creditors will likely achieve a better outcome, but unfortunately this may not always be straightforward.

“Going forward, trustees will need to focus on the financial durability of a business when determining the strength of the covenant.

"This is a difficult time for trustees and employers. The regulator’s focus on involving trustees in negotiations with other stakeholders will help protect member benefits.”

Meanwhile, Hymans Robertson partner, Laura McLaren, warned that things “may get worse before they get better”, noting that October could see companies facing “no more furlough support and the choice of re-commencing existing pension contributions or triggering an out-of-cycle valuation”.

She continued: “Ultimately, we may see more distress cases and restructurings, some of which are likely to involve significant pension liabilities.

“Against a backdrop of so much uncertainty, trustees will be apprehensive about companies putting off contributions which they could still afford and exposing members’ benefits to unnecessary risk.

“A welcome aspect to the latest guidance is that the regulator is becoming increasingly explicit over the conditions that must apply where contributions are being deferred.

"The overriding message is clear; schemes should be treated fairly compared to other stakeholders.”

Summing up the situation, Smedley concluded: “Trustees will be put to the test. This is likely to lead to some tough talk at the table as management seeks to justify their rationale for contribution suspensions.

“Companies seeking pension payment delays will need to roll up their sleeves for difficult conversations with trustees and their advisers.”

Share Story: