During the Covid-19 pandemic, much of the focus has been on shoring up existing delivery and, where possible, extending arrangements if it is not possible to re-procure.
As some of us bemoan the withdrawal of one daily episode of the Archers, it is a reminder that no industry will be untouched by the Coronavirus and its effects. The pensions industry, sadly, is no exception.
As the Pensions Regulator noted in its briefing of 20 March, “these are unprecedented, challenging and uncertain times for trustees, employers, administrators and, crucially, savers.” The Regulator has made it clear that schemes must be focusing on the following:
- Paying benefits;
- Minimising risk of scams;
- Continuing employer contributions; and
- Support for savers in these circumstances.
The purpose of this first pensions ebriefing, we imagine there will be many more, is to address some of these challenges and uncertainties in light of the information and the guidance that is available.
All information is correct at the time of print on 26 March 2020.
- Pension contributions - The huge economic effects of coronavirus and the uncertainty as to the longevity of these effects on businesses has prompted employers to ask whether pension contributions must still be paid. A suspension of pension payments or a reduction in payments could alleviate current pressures on businesses and possibly enable some to stay solvent. The Regulator, however, has been clear that whilst it appreciates the strains employers are under, there should be no break in employer contributions.
- Coronavirus Job Retention Scheme (furlough leave) - This scheme, announced by the Government on 20 March, enables employers to put employees, whose jobs no longer exist, on furlough leave until the end of the pandemic and the return of normal life and their jobs. This leave is paid leave and the Government has promised to refund employers 80% of the “employment costs” during this period up to a ceiling of £2,500. It is thought that this scheme will also extend out to freelancers and self-employed individuals. The issue of whether pension contributions will form part of the definition of “employment costs” has yet to be clarified by the Government. We hope to see the legislation sometime next week with more details. The general feeling in the industry is that the cost of employer pension contributions will be included.
- Business and contingency planning - The Regulator makes it clear that Funds need to address their business continuity plan and assess their robustness considering events. The activities of pension payments, retirement processing and bereavement payments must be prioritised and any issues that might hinder these must be addressed with scheme administrators and investors. It appears that the Regulator is making it clear that it is heavily relying on Funds to carry out these actions being as proactive as they are able. The current guidance offers no more information but this may change depending on the duration of lockdown and the effects on the economy and the stock market.
- Regulator powers - There have been some calls for the Regulator to call a pause to scheme activities dependent on asset values and a reduction or halt in auto-enrolment payments. It has yet to concede either of these but it has promised that it will “take a proportionate and risk-based approach towards enforcement decisions, in light of these challenging times, with the aim of helping to get employers back on track and supporting both employers and savers”. It may be that if the UK fails to get control of the pandemic, the Regulator may have to make further concessions and offer further assistance.
If you have any queries relating to your pension obligations during the coronavirus pandemic, please contact Alice Kinder.
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