The Pensions Regulator (TPR) has warned that the hardest times “may still be ahead” for many sponsoring employers in a letter to the Work and Pensions Select Committee (WPC).
TPR noted that smaller employers may find it “extremely challenging” to keep up with payment obligations and, as the government’s Coronavirus Job Retention Scheme (CJRS) is due to end in October, the near future could be the most challenging for some employers.
“For that reason, we will keep our approach under review as the impacts of the pandemic continue to unfold,” stated the author of the letter, TPR chief executive, Charles Counsell.
Although employers may struggle once the CJRS ends, TPR noted that the Cabinet Office has approved funding to run a campaign from August that will remind employers of their ongoing duties regardless of whether their staff are furloughed or not.
“As with all our messaging, we will consider the pressures of Covid-19 upon employers and how they may be trying to recover from an extremely difficult time,” wrote Counsell.
The letter was sent to the WPC in response to conclusions and recommendations that were relevant to TPR in the WPC’s report into the coronavirus outbreak in relation to workplace pensions.
Counsell noted that it has not seen widespread cessations or opt outs, but that there were “some”, and the regulator will continue to monitor the situation and update its guidance where appropriate.
“While we expect there will be a need for deficit recovery contribution (DRC) deferrals to continue, trustees should only consider them for an employer with immediate or demonstrable cashflow problems and after undertaking due diligence,” he added.
“We expect pension schemes to receive equitable treatment compared with other creditors and shareholders. We have made it clear trustees must ensure their scheme is not unfairly prejudiced by other creditors being inappropriately repaid in priority or through the paying of dividends while DRCs have been deferred.”
In a blog published today (5 August), Counsell noted that TPR had received 108 revised recovery plans since March.
Of these, almost 86 per cent have seen schemes agree to defer their employer's DRCs, the majority from small schemes and relating to sectors most affected by Covid-19.
TPR has urged trustees in situations where it has been judged necessary to suspend or reduce contributions from an employer to seek "appropriate mitigations".
These include the cessation of dividends and other covenant leakage until suspended DRCs are paid, arrangements for contributions to resume or increase based on appropriate triggers, and ensuring that the payment period for recovering deferred DRCs is no longer than the scheme's existing recovery plan if possible.
Due to the current environment, Counsell said that the regulator had refocused its relationship supervision of schemes to address issues arising from the pandemic.
“Our event supervision team is liaising with other schemes, taking a risk-based approach where we see that schemes are displaying a range of risk indicators or where it appears that the easements we have put in place are not being used in line with our guidance,” he explained.
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