März 23. 2020

Trustee Tasks Amidst COVID-19: What Should Trustees Be Doing?

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The full impact of COVID-19 is unknown but what is known is that the impact will be significant and far-reaching.  Measures being taken by governments around the world are severely restricting their citizens and will have fundamental consequences on businesses.

We are already seeing the impact of recent events in the pension sphere – hitting schemes and employers who sponsor those schemes alike.  Employers are having to take drastic action to manage their outgoings, carve out liquidity and preserve cash.  In this fast moving environment, Trustees will have to address issues effectively and quickly as they arise.  

Some key considerations for Trustees currently and suggested steps they can take are outlined below, though no doubt, there will be other issues that arise as the longer-term impact of COVID-19 becomes clearer.  The Pensions Regulator ("tPR") has issued statements in relation to COVID-19 developments saying: "we expect trustees to have appropriate monitoring and contingency planning in place and to be alive to risks that would have a significant consequences for their scheme and members". The Pension Protection Fund ("PPF") has already announced that it will accept contingent asset documentation and certain signatures electronically and will consider applications after the deadline on a case by case basis.

So Trustees cannot afford to sit back and wait to see what results from this difficult period.

Key Considerations

Scheme members
This will be a worrying time for members; they may want to transfer their benefits due to fears around the perceived instability of their sponsoring employer and/or the financial market.  As noted by tPR, this could make members more susceptible to scams. Trustees should therefore consider regular communications with members to help allay any concerns, reassure them and remind them about scams. What is communicated will depend on the specific situation of the scheme and may include confirming that benefits are still secure even if there may be a delay in processing payments/requests, reminding members to complete their expression of wish forms and telling members about any steps being taken by the Trustees in the current circumstances of COVID-19. It might be appropriate to provide periodic updates to members on these and other points to help prevent concerns arising.

Statutory requirements continue to apply, so although tPR has announced that it will take a fair and proportionate approach to enforcement, Trustees should bear this in mind.  For example, Trustees should ensure that member choices (such as investment switches and transfers) are actioned promptly to avoid later claims that members suffered financial loss through delay. It is important, therefore, that Trustees take active steps to minimise disruptions in the day-to-day running of their schemes. 

Day-to-day running of the scheme
Self-isolation and home-working on the scale we now see is unprecedented for this generation and the previous generation. Trustees should consider their current operations and take steps to ensure that the scheme continues to operate day-to-day and on a business-as-usual basis. This could mean that appropriate and pragmatic changes to operations are required to manage the new working patterns.   Immediate steps for Trustees to address include:

  • Checking the scheme’s governing documentation to determine whether Trustee meetings can be held via conference calls and minutes can be signed electronically;
  • Contacting third-party advisers and service providers to check they have contingency plans in place that support the running of the scheme. For example:
    • operating the scheme payroll remotely;prioritising pensioner payments where necessary (as recommended by tPR);
    • accepting electronic instructions (contacting the member’s number on file to verify instructions);
    • exploring electronic certification (many administrators provide this service); and
    • communicating with members over email with password protected attachments, rather than by post (with a hard copy to follow in the post if required);
  • Considering the impact of the current situation on scheme funding (particularly given the effect that the reduction by the Bank of England of interest rates to an all-time low of 0.1% will have on scheme deficits), forthcoming funding valuations, payment of PPF and tPR pension levies  - taking appropriate advice (see below); 
  • Analysing the status of service providers to the scheme, including identifying what is critical, such as scheme administrators, and where your risks are.  There are ways to try to limit exposure, including identifying potential alternative and/or dual suppliers, seeking legal advice about options on the insolvency of an existing supplier and advance planning on managing an orderly transition to a new supplier.  Be aware of any force majeure rights in any contracts and consider the effects of them on those services;
  • Reviewing insurance policies, for example in relation to any limitations that might operate in the current circumstances; and 
  • If  member nominated trustee/director elections are due to take place, considering whether it is possible to proceed in the current circumstances (reviewing the member nominated policy and arrangements in place, and the scheme's trust deed).

Scheme investments
The market volatility which has followed COVID-19 will also have adverse impacts on the investment and funding strategies of many schemes.

Trustees of defined benefit schemes should consider with their investment advisers:

  • Whether there is any action required in the short term, for example whether planned investment changes or de-risking exercises should go ahead;
  • In the longer term, how the funding journey plan is affected and whether strategy changes are needed.  

Trustees of defined contribution schemes should consider whether there is anything that they should communicate to members about the situation.  There is some basic but sensible "How will Coronavirus affect my pension or investments" information on the Money Advice Service website which members could be referred to.

Position of the scheme sponsor
All sectors will be impacted in some way as a result of COVID-19. Trustees should contact their sponsoring employers to understand their business contingency plans and the types of risks being faced by the business (particularly in the medium and long term).  Other issues include how employee salary arrangements might affect employee contributions due to the scheme.

The sponsoring employer may (for example, as a result of its contingency planning) want to:

  • Agree a contributions holiday (or lower employer contributions) with the Trustees;
  • Borrow money, perhaps on more onerous terms or increase its existing debt, or move to borrowing on a secured basis; and/or
  • Restructure its balance sheet and/or operations on an urgent basis in order to avoid facing insolvency.

Trustees will need to consider and respond to these requests (against the background that tPR has said that employers need to continue contributing to their schemes),  proactively raising with their covenant advisers and the employer the impact on the employer’s business of the COVID-19 crisis, the measures being taken to protect the business and ride out the storm, and the implications on scheme funding and members’ benefits.

In these uncertain times, what is clear most of all is that there will need to be a joined-up and holistic approach to the issues that pension schemes may be facing. This will mean Trustees, employers and other stakeholders working together, with their advisers, sooner rather than later, to mitigate any impact on the pension scheme and the delivery of members' benefits.

Our Pensions Restructuring team is market leading and has up-to-date, hands-on experience of supporting pension trustees through distressed situations.  We can help you navigate your way through them, leveraging the expertise of our pensions, restructuring and finance teams, through our solutions-driven, practical and pragmatic approach. 

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