On 16 June, the Pensions Regulator (TPR) updated its COVID-19 guidance for employers and trustees. This includes an extension to measures to help pension schemes navigate the challenges presented by the pandemic, beyond 30 June 2020.
In the updated guidance, TPR says it will act reasonably where employers seek to alleviate financial pressures through reducing or suspending deficit repair contributions (DRCs), or securing additional debt over employer assets. To date, it estimates that 10% of schemes have agreed a temporary reduction or suspension of DRCs and it is likely that more schemes will follow suit as employers continue to experience trading and liquidity pressure.
Where an employer needs to take this kind of action (or seeks an extension to existing arrangements), it must be able to demonstrate that:
- this is justified;
- there is a plan to catch up on missed scheme payments;
- there is a plan to mitigate detriment caused to the scheme – that being said, TPR recognises that mitigation may not always be possible;
- the scheme is being treated fairly compared to other stakeholders – for instance, continuing to pay dividends to shareholders is likely to be incompatible with this.
TPR says that trustees should be open to such requests from employers. However, improved visibility of employers’ financial situations since the COVID-19 lockdown began, means that TPR expects trustees to carry out due diligence on the employer’s financial position before agreeing to new requests. It will not be appropriate for trustees to simply extend original suspension arrangements based on limited information.
Employers are urged to provide trustees with the information they need, and keep trustees informed of discussions involving financial arrangements with third parties (such as banks and other lenders) as the outcome may impact the position of the scheme. Regular sharing of forward looking and actual financial information will enable trustees to understand the business case for such proposals.
Many employers will be relieved to hear that TPR is continuing to take a pragmatic approach towards scheme contributions, as pressures on liquidity and trading continue.