Commenting on The Pension Regulator’s Guidance on COVID-19 for Pensions Schemes, Susan McIlvogue, Head of DB Pensions, Hymans Robertson, says:

“We welcome the additional guidance and flexibilities from the Regulator.  The ability to suspend pension contributions, transfer values and completion of triennial valuations for three months gives trustees and employers valuable breathing space during these unprecedented times.

“Trustees should carefully consider what actions to take.  Suspending pension contributions may be in members’ best interests if it results in a strong and health sponsor once we emerge from the ravages of Covid-19. However, in some cases, suspending contributions will not be enough to save the sponsor and could ultimately result in members receiving lower benefits.

“Trustees also need to consider the hidden implications of suspending contributions.  Many schemes are carefully managing the risk of being cashflow negative and suspending contributions will heighten the risk of becoming forced sellers of assets at depressed prices.  Some schemes will need more rather than less cash due to Covid-19 impact, including extra collateral calls and extra benefit payments if more members look to draw benefits early or take transfer values. Schemes could be faced with a  perfect storm of less cash coming into the scheme, more cash going out of the scheme, plus a deterioration in funding levels and sponsor covenant strength.

“Suspending transfer values could help schemes manage cashflow needs at this time, as well as easing the administration burden and reducing scam risk.  However, it isn’t necessary for all schemes, particularly those better funded, more de-risked schemes that have been more insulated from the funding impact of Covid-19.

“Trustees are faced with many difficult decisions and we shouldn’t forget that they too are grappling with the practical aspects of Covid-19 and acting on business continuity plans in a way that they have never been faced with in the past”