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New emergency
Covid-19 guidance from the Pensions Regulator – some helpful concessions

Our viewpoint

Late on 27 March, the Pensions Regulator (TPR) published further emergency Covid-19 guidance

The guidance includes concessions in relation to DB funding, and the quotation and payment of transfer values, both of which will be helpful to trustees and sponsors in some circumstances. However, both also come with new issues to consider. 

Funding Valuations 

In relation to DB scheme funding, TPR sets out two key concessions with the headlines being: 

  • If the trustees need more time to consider the current circumstances, they can delay submitting a valuation for up to three months after the statutory 15 month deadline and TPR won’t take any regulatory action; and
  • Trustees should be open to considering a request from the employer to suspend or reduce deficit contributions for up to 3 months while they gather the information they need to assess the employer’s position properly, but this is subject to a number of conditions, including that there should be no shareholder returns during the period and that banks and other funders are being supportive. 

My colleague Steven Taylor blogged about the current cashflow challenges some companies are having last week, and the possibility of suspending deficit contributions, following previous TPR emergency guidance on 20 March. This latest guidance builds on the 20 March guidance and introduces some new flexibilities – the situation is certainly moving quickly.

Clearly TPR can’t change the law.  They also can’t change the rules of the pension schemes. And they can’t change the professional duties of trustee advisors – with the Scheme Actuary having an important role here. Because of this, TPR are keen to stress all the hoops that they expect trustees to go through before agreeing to these concessions. For example, this includes ensuring that there is a legally binding commitment not to pay dividends during any suspension of deficit contributions.  And on top of that, the trustees still have their general duties to do the best thing for members – and generally that won’t be deferring contributions other than in the more extreme cases where a business’ survival is in question.

So, whilst this latest concession is to be very much welcomed and is likely to help some companies survive during the next few months (very good news for some employees, investors, and many pension scheme members), neither employers nor trustees should underestimate the work needed to ensure (and evidence) that it is appropriate to make use of the concession. And where companies are fast running out of cash, this needs to start now.

Quoting and paying transfer values 

TPR also discusses the topic of transfer values in their guidance, and helpfully reminds us all that trustees should be mindful of the heightened risk of members being targeted by scammers and unscrupulous financial advisers, given the current financial challenges that many of them may be facing. My colleague Clive Harrison blogged about these risks to members last week.

TPR then sets out in their guidance that trustees can decide to suspend transfer quotations and payments for up to 3 months in order to give them time to review transfer terms and/or to assess the administrative impact of any increase in demand for transfer quotes. In particular:

Schemes’ finances can be at risk from transfers, when combined with volatile investment markets. This can be exacerbated by the legal requirement to add a three month guarantee to a transfer value. The guarantees can act to lock in higher payments to members, whilst the scheme’s assets may be falling in value. 

TPR is also rightly concerned that in some situations an increase in transfer activity could put further pressure on administrators in this challenging business environment, and that could put at risk critical administration tasks like pensioner payroll in some circumstances.

With these increased risks, and the possibility of making use of this new concession from TPR, my recommendation to trustees is to promptly review their approach to transfers and check it still makes sense. In many cases, trustees may decide to carry on as normal but monitor the situation more closely.  In other cases, it will make sense to pause quoting and/or paying transfers until the situation can be considered, and perhaps up to 3 months of delays imposed. However, this is not something to do lightly, as some members who are currently in the transfer process are likely to be very upset if they can’t access the money they see as theirs. And despite TPR’s concession, it remains a legal right to be able to transfer within certain time periods.

In all cases, I suggest there should be close monitoring of transfer activity in schemes (ideally weekly) over the coming months, and new warnings should be added to member communications, in line with TPR guidance. 

Further guidance to come 

For the time being, TPR is saying that the next guidance we should expect is their 2020 Annual Funding Statement which we are promised “after Easter”. This will set the tone for upcoming valuations, and it won’t be easy for TPR to get the right balance in the current highly challenging business environment.  Given the pace of change – two sets of emergency guidance one week apart! – I do wonder if we will see further concessions from TPR yet, especially as the number one focus of government is to keep business afloat and people employed for the coming months.