The Pensions Regulator’s COVID-19 guidance – where are we now?

The Pensions Regulator issued a suite of COVID-19 guidance for trustees and employers at the end of March. As part of that guidance, the Regulator announced that it would be taking a more flexible approach to regulation and enforcement in certain areas for a limited period. Over the intervening months, this flexibility has largely been removed now that schemes have come through the initial disruption and adjusted to new ways of working. Many employers, however, are still experiencing difficult times.

The latest guidance issued by the Regulator in September includes the following points on contributions which may be of interest to employers:

Defined contribution schemes

For defined contribution schemes, the requirement to make a report to the Regulator where contributions are 90 days late was relaxed in March to allow 150 days instead. With effect from 1 January 2021, the Pensions Regulator will expect pension providers and trustees to revert to reporting where contributions are 90 days late. The guidance states that this will become mandatory from 1 April 2021. It is not clear whether that means reporting after 90 days is optional between 1 January and 1 April 2021, but we would anticipate trustees wanting to take a cautious approach and make a report.

Defined benefit schemes

Part of the March guidance was aimed at trustees of defined benefit schemes where the pandemic was having an adverse financial impact on the employer. In particular, it covered the situation where an employer requests a reduction in, or suspension of, deficit repair contributions.

According to the Regulator’s September guidance, contributions have been temporarily reduced or suspended for around 10% of defined benefit schemes. In addition, some employers and trustees have engaged in wider funding discussions that may or may not involve a reduction or suspension of contributions. Measures such as a parent company guarantee, charge over property, or an escrow arrangement can be a means of increasing security for a scheme in a way that does not require contributions at a level that is currently unaffordable for the employer.

The Regulator says that it recognises that it may still be appropriate in some circumstances to defer the payment of contributions and, whilst keeping the guidance under review, the ground rules it laid out in March remain the same. To recap, these are that:

• the need for deferral or suspension can be justified;
• there is a plan for deferred scheme payments to be caught up;
• a plan is agreed for mitigating any detriment caused to the scheme (or if that is not possible, the trustees make their decision to proceed without mitigation in accordance with their fiduciary duties); and
• the scheme is being treated equitably compared with other stakeholders (in particular, payments to shareholders should have stopped).

Both the employer and trustees should take legal advice and formally document any such agreement to enable them to demonstrate to the Regulator that the relevant conditions have been met and the correct process has been followed.

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