Amid the profound effects of the pandemic on the economy, pension fund assets have fallen in value by around 20% and many sponsoring employers are in trouble. Unprecedented government interventions have been necessary to shore up the UK economy, with similar actions seen in many other countries.
In launching the Coronavirus Job Retention Scheme the Government recognised the need to maintain the inflow of auto-enrolment pension contributions. Employers taking advantage of the grant of 80% of furloughed workers’ wages up to £2,500 per month will be able to reclaim from the Treasury the 3% minimum contributions as well as employer NICs, but will still have to cover any contributions required on pay above this level. At the moment, this scheme runs only to the end of May.
In a highly unusual move, the new Occupational and Personal Pension Scheme (General Levy) (Amendment) Regs, laid on 4 March, were suddenly revoked on 27 March; scrapping – for the moment - a 10% hike in levy payments that would have had an especially severe impact on master trusts, into which most employers have auto-enrolled their workers.
Regulators are always hungry though, and The Pensions Regulator (TPR) is facing a growing funding deficit that will have to be either made up by higher levies in future, or (less likely) reduced by an agreement to curb the cost of regulation. In the meantime TPR must be given credit for doing its bit to help stabilize pension schemes and sponsoring employer covenants.
Trustees of Defined Benefit (DB) schemes have been told that if scheme rules allow, they can suspend transfer value quotations and payments for three months. This will protect schemes against a damaging outflow of funds at a time when asset values are plummeting, and also scheme members who are at greater risk from predatory scammers.
Schemes currently completing their valuations will not be expected to revisit their assumptions during this period of market volatility, nor take account of post-valuation experience, although this should be factored into future agreements on recovery plans.
Statutory reporting obligations cannot be waived, nor any obligations under scheme rules; but TPR will not take regulatory action in respect of late reporting (and may temporarily extend the deadline for reporting late payments from employers from 90 days to 150 days).
TPR will also allow DB scheme trustees to delay submission of their recovery plan and upon actuarial advice, to reduce or suspend deficit repair contributions (DRCs) for up to three months while they take stock of their employer’s covenant. TPR will expect payment of dividends to be suspended in line with any suspension of DRCs.
New investment guidance has been issued, for trustees of Defined Contribution (DC) as well as DB schemes; the key theme being the need to keep everything, especially risks, under constant review. Behaviour of DC scheme members in particular should be watched for reactions to falling fund values at a time when earnings too are evaporating.
This highlights the fact that trustees’ fiduciary duties are not confined to investment. They are responsible for sound and cost-effective scheme administration, communications and governance too. With the Pension Protection Fund (PPF), members of defined benefit schemes have some assurance if the employer fails, but those reliant on money purchase pots will be on their own.
Meanwhile, what has the FCA had to say? Their reaction to the woes of pension schemes and their members and sponsoring employers seems to have been muted by comparison; though they have joined TPR (which has the lead role in protection workplace pension provision) in urging savers to keep calm and not rush to make any decisions about their pension. Very quietly, and then only by implication, the FCA has pushed the final decision on banning contingency charging for DB pension transfers back for up to six months.
Other issues are still arising: for example, on possible relaxation of ID checks, given the restrictions on movement and interpersonal contact. Will uncertified photocopies be acceptable for the time being?
One thing is becoming clearer: while regulatory easements – and indeed Government interventions like the Coronavirus Job Retention Scheme – are understandably being paraded as ‘temporary’ arrangements, there is no question that we shall ever revert to a pre-pandemic way of working. Make no mistake: a fundamental reset is under way.
Ian Neale, Director at Aries Insight
