Pension trustees must be 'prepared to respond quickly' to sponsor distress

A guide for trustees seeking to manage sponsor distress has been published by Pinsent Masons, as the law firm warned that the Covid-19 pandemic is continuing to cause supply chain risk and a liquidity squeeze.

The blog post from the firm urged pension scheme trustees to be prepared to respond quickly to signs of scheme distress, such as requests from sponsoring employers to reduce or suspend the payment of deficit repair contributions.

It split managing sponsor distress into separate ‘prevention’ and ‘action’ stages, commenting that the former should see trustees reviewing their processes and procedures to ensure that they are fit for purpose and will allow for the testing and monitoring of different scenarios that may occur.

The ‘action’ phase was broken down into four steps, with the first being the emergence of a sponsor crisis.

During this stage, it was recommended that trustees take steps such as liaising with The Pensions Regulator (TPR), addressing member concerns, arranging for the appointment of any necessary additional advisors, implementing contingency plans and establishing whether further trustee training is necessary to deal with the situation.

Next, upon the arrival of the looming crisis, Pinsent Masons said it was key to tackle several administrative and governance steps such as considering moving banking and payroll to a third party, and ensuring member data and member files are accessible to extract if held on the employer's site.

The firm noted that following these steps and more was key to ensure that trustees are able to be completely on top of administrative and governance matters before the crisis escalates.

Thirdly, member communications should flag the potential risks of falling for scams when transferring away from the scheme, in-house administrators should have contingency plans for retaining member data and trustees should look to implement business continuity plans.

The final stage, which takes place after the employer has gone into liquidation, was heavily focussed on communications, and included recommendations for drafting pre-prepared statements, bringing in public relations consultants and making preparations to face a parliamentary select committee.

The blog post noted that trustees should seek suitable professional advice during both the ‘prevention’ and ‘action’ steps, adding that it was “important that trustees' processes and procedures not only meet TPR's guidance, but also improve scheme governance and risk management”.

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