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Coronavirus: what pensions steps should you take now? - UK

  • United Kingdom
  • Coronavirus
  • Pensions


The speed and size of the impact of Covid-19 on the UK is stunning – we now see businesses closing, stock markets falling and much of the population staying at home.

There’s so much to take in - this speedbrief will help you understand the immediate pensions implications of Covid-19 and what trustees and sponsors can and should be doing.

How can trustees keep schemes running smoothly?

Trustees should:

  • contact administrators to discuss their contingency plans and how they plan to ensure key scheme functions, such as pensioner payroll, will continue if offices close and key personnel are unwell
  • check the administration agreement. Does the administrator have a business continuity plan (BCP)? Are they implementing it? What happens under the agreement if the BCP is not successful? Does it talk about catastrophic events?
  • talk to the sponsor about arrangements for collecting contributions from employees. Will they continue as normal or are there issues which need to be addressed?
  • can the trustees ensure sufficient access to cash to pay benefits? Think about contacting your bank to ensure that it too has an appropriate BCP in place
  • identify all key service providers and contact them to determine whether there are any risks that key services will be affected and if they have/are implementing BCPs

The Pensions Regulator has issued a statement saying it expects “trustees to have appropriate monitoring and contingency planning in place and to be alive to risks that would have significant consequences for their scheme and members”.

This includes “having a business continuity plan... Trustees should also understand their service providers’ business continuity arrangements”.

This has clearly been a huge shock for investments. What should Trustees do?

Trustees should check:

  • are the arrangements in place to monitor investments proving to be effective and adequate?
  • do changes need to be made to the investment strategy?
  • will contributions continue to be passed to the fund managers to invest and are they able to continue to invest them promptly?
  • where trustees have long-term investment plans in place, do they need to be revisited – are they still fit for purpose? Check this regularly as things develop
  • is it possible to put any additional risk mitigation strategies in place? The current situation could continue for the medium term
  • where existing de-risking triggers are in place, consider whether they should be reviewed in light of recent market movements

What should trustees do about the scheme’s funding position?

This will depend on where you are in your valuation cycle.

Ongoing valuations: If the valuation date was before the current crisis, falling asset values may not have a significant impact. However, trustees should check with the scheme actuary.

Valuation dates now: Where the valuation date falls at any time from March onwards, then the problems are greater. The starting point for the valuation will be the asset value now. The Pensions Regulator has said that it will give some guidance in its annual funding statement, which is due out after Easter, so trustees (and sponsors) should look out for that.

Recovery plans: Sponsors with businesses particularly affected by Covid-19 may not be able to meet the deficit recovery contributions set out in any recovery plan. Trustees should ensure that they are fully aware of the financial position of the sponsor and monitor covenant strength.

In the 2008/9 financial crisis, the Pensions Regulator issued a statement reminding trustees that they can “renegotiate recovery plans… as… the best security for a pension scheme is a viable employer”. The Regulator encouraged trustees and employers “to engage in open dialogue… and to contact [it] if concerned”. That seems a good place to start in the current circumstances.

Guarantees: Where funding arrangements are supported by guarantees, trustees should consider whether they remain appropriate and whether further security is required. Trustees should also review the terms of the guarantee to see when it becomes enforceable.

What if the sponsor has material Covid-19-related financial difficulties?

Actions to consider taking here will include:

  • check what the scheme rules provide – do they allow for a temporary suspension of contributions?
  • what powers do the trustees have under the scheme rules if the employer does not pay contributions?
  • consider the implications for auto-enrolment and whether minimum contributions will continue to be met
  • will the schedule of contributions/payment schedule need to be adjusted?
  • should the Pensions Regulator be contacted?

It’s the time to certify PPF guarantees – possible impact?

The deadline for submitting guarantees to the PPF is 31 March. The PPF has issued a statement saying it does not want hard-copy documents and explaining the electronic format in which documents should be sent. It has also said that it will accept documents with e-signatures.

Where schemes have PPF-compliant contingent assets, such as parent company guarantees, trustees should consider whether they can still be relied upon and appropriately certified.

Where PPF levy documents cannot be finalised because, for example, key individuals are not available, the PPF says that whilst it can’t “formally approve extensions in advance”, if trustees submit “documents after the deadline, [it will] consider the circumstances and where it’s reasonable… accept them”. Trustees will need to give reasons for late submission.

The PPF has also issued guidance saying that trustees should have a contingency plan in place to deal with a PPF assessment period in the event that the sponsor becomes insolvent. This would include ensuring that any member data stored by the employer remains available and that the pensioner payroll can still be run.

How to manage the position for DC members approaching retirement?

Falling stock markets will have had a significant impact on the fund value of many DC members. For most, this may be a short term issue only. However, for those looking to retire now or in the next few months, it could be a big issue.

Trustees should consider whether there is a need to communicate with members in this category. Sponsors could consider whether it might be possible to delay retirements.

Are there insurance issues to consider with death benefits?

Yes. Where lump sum death benefits are insured, trustees should:

  • check if there are restrictions in the insurance policy that could apply in the current pandemic
  • check if the scheme rules require a lump sum to be provided even if the underlying insurance policy does not pay out

Can trustees still meet if we are not face-to-face?

It is unlikely to be possible to hold normal face-to-face trustee meetings over coming months. To ensure that the scheme can continue to be run properly:

  • check whether scheme rules (and articles of association in the case of a corporate trustee) allow for meetings to be run remotely
  • how many trustees need to be present for a meeting to be quorate? Are there provisions to appoint alternatives should it become necessary?
  • can documents be signed remotely where necessary?
  • do all trustees have access to online meeting papers?
  • are those with delegated authority still able to exercise the decisions delegated to them?
  • are home working arrangements consistent with GDPR – so are documents stored safely and securely, and destroyed appropriately?

What next?

The situation will continue to develop over the next few months and trustees should regularly monitor the impact on them and the ability of their scheme to function as normal.

Eversheds Sutherland has implemented its continuity plans with all employees working at home and, save for face to face meetings, continues to provide services as normal.