Pension schemes and sponsors urged to tackle COVID-19 crisis together

Pension schemes and their sponsoring employers must work together to tackle the ongoing economic crisis caused by the coronavirus pandemic, industry figures have said.

With the risk of company insolvency at a high, pension scheme funding and the payment of member benefits are under threat.

It has been mooted that pension contributions could be paused, although The Pensions Regulator (TPR) has said that it expects companies to continue to meet auto-enrolment duties, and deficit recovery plans may need to be adjusted to minimise insolvency risk.

“The current crisis has clearly caused pressures for schemes on both the asset and liability side, but the bigger short-term issue in some cases is making sure that the sponsoring employer survives the crisis,” began LCP partner, Steven Taylor.

“In most cases, company insolvency will be a very poor outcome for pension scheme members.

“In past crises, the system has shown flexibility, with sponsors able to adjust recovery plans to deal with short-term pressures.

“We now need companies and trustees to work together to come up with plans that help the company to survive whilst retaining a credible approach to pension scheme funding, and provide appropriate protection for scheme members.”

He called for “urgent clarity” from TPR to help trustees and schemes understand their options.

Buck UK head of retirement consulting, Vishal Makkar, agreed that it is “vital” that sponsoring companies and trustees work together “to secure an outcome that maximises the security of member benefits and ensures the sustainability of employers”.

“With the Chancellor announcing a number of new measures to financially help businesses and individuals, it is perhaps not an unreasonable request from some companies to ask for a temporary reduction in deficit reduction contributions to support them in these difficult times,” he continued.

“The reality is that despite government intervention some businesses may not survive the next few months, including pension scheme sponsors who are currently considered to have strong covenants.

“The funding regime is designed to be flexible and, in some cases, particularly where companies provide clear justification and contingency support to trustees, a temporary suspension of contributions may give some companies enough breathing space.”

Barnett Waddingam partner, Mark Futcher, noted that DC scheme members will be concerned about their immediate financial security and may be “forced to cut pension contributions in order to meet shorter term demands”.

“This is understandable and might be necessary,” Futcher added.

“If they can stay in a pension then obviously they will continue to receive their employer contribution and tax relief. They could also benefit when stock markets rise.

“If, as has been suggested, the government allow employers to temporarily cease employer contributions to a pension plan, then this will have a knock on impact for people’s pension pots. This would be a bold decision, but these are extraordinary times.”

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