These key action points take into account the UK Pensions Regulator's recent statement on COVID-19. Trustees and employers should continue to monitor further updates from the Regulator.

Defined benefit (DB) arrangements

Issue Considerations
Employer covenant monitoring
  • Trustees should engage with their sponsor to understand the impact of business disruption caused by COVID-19 on the employer covenant, particularly in industries such as travel and hospitality where the level of disruption is likely be particularly high. Trustees are likely to need independent professional covenant advice.

  • Employers should consider putting in place regular financial updates to the trustees to assist them with covenant monitoring.
Risk of employer failing to meet funding obligations/insolvency planning
  • If there is a risk of employers not meeting their funding obligations, or possible insolvency, employers and trustees should initiate immediate discussions with advisers on possible options and next steps.

  • Professional advice should be taken to understand options on payment default and/or insolvency. This includes reviewing plans rules (for example wind-up triggers and contribution rules) and any contingent asset terms (for example guarantees, escrow arrangements) to understand each party's right and powers.

  • Consider whether notification to the Regulator is required under the current notifiable events regime, or otherwise.

  • If sponsor insolvency is envisaged, trustees should start preparations promptly - for example understanding which of their powers will survive employer insolvency, how expenses will be met, transfer powers. The PPF's contingency planning guidance recommends that DB trustees ensure that they have electronic access to all scheme governing documents and member records (including contact details and payroll) and also a list of all employers attached to the scheme.
Investment issues and importance of liquidity/cash flow
  • Trustees should seek input from investment advisers on whether the scheme's investment strategy should be adapted to reflect recent market movements.
Implications for actuarial valuations
  • The COVID-19 situation will clearly impact those schemes with actuarial valuations currently being undertaken.The scheme actuary should advise on the potential for the valuation to take account of market changes after the effective date (the Regulator allowed this approach after the 2009 financial crisis).

  • If a buy-in transaction with an insurer is underway or in contemplation, trustees should check pricing with the provider.

  • Trustees of schemes with March and April valuation dates should take particular note of the forthcoming 2020 Regulator's Annual Funding statement.
Certification of PPF contingent assets
  • Both trustees and employers should consider any potential difficulties with certifying contingent assets being used for PPF levy purposes as at 31 March 2020. For instance, it may be more difficult for a "guarantor strength report" to be prepared in the current economic environment. The PPF has published some helpful guidance in this area.

All types of pension arrangement (DB and DC)

Issue Considerations
Trustee meetings and decision-making
  • The COVID-19 situation may require additional trustee decision-making and an increased number of meetings via conference call. Trustees should seek legal advice on plan rules (and trustee company articles) to check how decisions are made on areas such as remote meetings, trustee quorums and document execution.
Early engagement with advisers and service providers
  • Business continuity plans of scheme providers/advisers should be checked. How will services (such as member helplines) be provided during staff absence and how will working away from office facilities operate? Contractual obligations including providers' data protection and confidentiality arrangements should be checked.

  • Administration services (whether provided in-house or externally), particularly payroll services, are an area of particular importance during this critical period and arrangements should be made for the continued payment of benefits in different scenarios. The Regulator has said that it is engaging with administrators to understand their level of preparedness.

  • The Regulator has said that employers and trustees should, in particular, understand which scheme activities would be prioritised in the event of under-resourcing, for example pensioner payments, retirement processing and bereavement services and confirm this with the administrator/provider.
Contribution holidays or reducing contributions
  • Under current rules, a complete contribution "holiday" to a DB scheme may only be possible where a funding surplus exists. However, it may be possible for employers and trustees to agree to reduce or defer contributions by amending the current schedule of contributions. This is a complex area and both actuarial and legal advice would be required. The Regulator would also need to agree such an approach.

  • A reduction of contribution levels to a DC scheme may be possible in some cases. Legal advice should be sought to ensure that issues such as compliance with automatic enrolment duties and pension consultation requirements have been considered.

  • Any late contributions may have to be notified by the trustees to the Regulator, subject to materiality thresholds referred to in Regulator guidance.
Insured death in service benefits
  • Review the terms of any insurance policy covering death in service benefits to check if cover impacted where a pandemic has been declared.
Member concerns and communications
  • Members of both DB and DC schemes will be understandably concerned about the impact of the current crisis on their pension benefits and security of benefits and queries should be anticipated.

  • Trustees should be prepared for queries on the impact of any absence or reduced hours on their pension contributions and benefits.

Explore More Insight