Renold has agreed a 12-month deficit reduction contribution (DRC) suspension with trustees, according to the group's preliminary annual report.

The chain, gear and coupling manufacturer stated that, reflecting the uncertainty in short-term outlook caused by the Covid-19 pandemic, it had approached trustees with a request to defer contributions for a 12-month period to 31 March 2021.

This was supported by the trustee, and it was agreed that the deferred contributions would be repaid over a five-year period, to commence on 1 April 2022.

Other conditions required to secure the deferral included an additional contribution to the scheme of 25 per cent of any dividends paid, in addition to the existing 25 per cent requirement, until such time as the deferred contributions have been “made good”.

The group have, as required by The Pensions Regulator (TPR) for a DRC suspension, also demonstrated a number of steps to reduce costs, including suspending all discretionary spend, renegotiating payments on leased properties, and temporary pay reductions for indirect employees.

This included, for instance, a 25 per cent reduction for the executive directors, and 20 per cent for the non-executive directors.

TPR confirmed today (16 June) that easements around DRCs would continue, emphasising however, the need for due diligence, particularly as it now expects “greater insight” into an employer’s short-term liquidity to have developed.

The latest triennial valuation of the Renold UK pension scheme, with an effective date of 5 April 2019, was agreed in March 2020 with no change to future contribution arrangements.The next triennial valuation date will be as at 5 April 2022.

Renold's retirement benefit obligations fell to £97.6m as at 31 March 2020, compared to £101.9m in March 2019, with UK specific scheme deficit in particular decreasing by £14.3m, from £68m (72.6m in 2019).

The group stated that this reflected a “number of changes in assumptions and factors”, including the inflation assumption reducing, experience gains from mortality being greater than assumed in the calculation of liabilities, and settlement of liabilities through pension payments and transfers out of the scheme.

It clarified however that this had been offset by a reduction in scheme assets, through the combined effects of payments of benefits and reductions in asset values following market volatility amid the current crisis.

Renold chief executive, Robert Purcell, added: “The uncertainty caused by the Covid-19 pandemic is likely to result in a period of volatile demand, preventing the board from giving specific guidance for the year ahead at this stage.

"The group’s financial position has been strengthened by the flexibility provided by our lenders and the trustee of the UK pension scheme.

“Together with the cost and cash actions taken, this supports the board’s confidence that the group will be able to manage through the current period of disruption.

Renold also listed pensions deficit volatility as a “principle risk and uncertainty”, highlighting the principle pensions risk as the possibility that short-term cash funding requirements of legacy pension schemes divert much needed investment away from the group’s operations.

However, it also outlined a number of existing mitigating controls, such as updating the UK triennial funding review to March 2022.

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