More than 500 employers are expected to defer on pension deficit recovery contributions (DRC) totalling around £0.5bn, according to analysis from Lane Clark & Peacock (LCP).

LCP estimated that at least 10 per cent of sponsoring employers were likely to delay making contributions by at least 3 months, based on survey data from industry analysts and clients.

Under new flexibilities outlined by The Pensions Regulator, employers are permitted to delay making contributions to schemes if they are undergoing significant financial hardship and have explored other means of easing cash flow problems.

LCP partner, Steven Taylor, said ensuring that pensions are paid and employers stay in business “may mean easing cashflow pressures, including agreeing a package of measures with creditors that includes holding back on agreed pension contributions”, adding that “most employers will not take this step lightly”.

Some of the major companies to have already sought a delay to deficit reduction contributions include Arcadia and Debenhams.

The firm added that reasons employers might not want to take advantage of this flexibility included the irregular nature of some deficit reduction contributions and avoiding compromising long-term plans for tackling deficits.

Additionally, some employers might not need to defer payments as their sectors could be handling the coronavirus crisis relatively well, while schemes that are in surplus would also have little need to worry about contribution deferrals.

LCP partner, Jill Ampleford, commented: “Some firms that are fundamentally sound are nonetheless facing huge short-term cashflow pressures during the present crisis. The ability to agree with trustees a delay in making pension contributions will help them to weather the present storm and continue their support to the scheme in the long term.

“But it will be vital to get things back on track once the crisis is over so that a realistic plan is put in place to deal with the shortfall in the pension scheme, particularly as this could have materially increased due to changes in financial markets.”

The Pension Protection Fund said there were 5,436 defined benefit pension schemes in operation in the private sector in March 2019, while data from the Office for National Statistics showed that employers pay around £5.5bn into defined benefit schemes in a typical quarter.

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