COVID-19: Checklist for pension scheme trustees

• Processes: Speak to your administrators to ensure that they are able to operate their business continuity plan and that all processes will be carrying on as normal. This includes the payment of pensions and other benefits, processing and prompt investment of contributions, fast DC fund switches and transfer value payments (to avoid claims for losses caused by delays), and processing retirements. Are the administrators able to continue operations fully remotely or are there limitations?  Are they able adequately to cover staff on sick leave?
  
  If there are under-resourcing issues, agree which activities should be prioritised – the Pensions Regulator suggests that these might be paying benefits, processing retirements and paying death benefits and refers trustees to PASA's guidance for administrators. The Regulator also tells trustees and administrators to report to the Regulator immediately if they believe they will be unable to pay members' benefits.
  
  Tell members about the steps you are taking to continue running the scheme, any disrupted services (including current timescales), and how they can contact the scheme. The Pensions Regulator suggests that this can be done via the scheme website, acknowledgement replies to emails and recorded call centre messages, and by post if necessary.
  
  
• Transfer values: The Regulator's 27 March guidance for DB scheme trustees includes a section on suspending transfer value quotations and payments in the next three months: trustees who miss transfer legislation deadlines still have to notify the Regulator but it will not take regulatory action.  The Regulator says that the Pensions Ombudsman will take the Regulator's guidance and the current exceptional circumstances into account when considering complaints.
  
  The Regulator's 29 April guidance tells trustees to be alert to risks related to transfer requests and give members suitable warnings.  Members requesting a transfer value quotation should be sent a letter that the Pensions Regulator, Financial Conduct Authority and Money and Pensions Service have produced about transfer risks. The Regulator also asks trustees to include messages from its separate template letter when responding to a transfer request. Trustees are asked actively to monitor the number of requests for transfer quotations they receive and which advisers are involved.  If you identify unusual or concerning patterns, you are asked to report these to the FCA at DBTransferSchemeInformation@fca.org.uk.
  
  See our briefing note "Pension transfers in the time of coronavirus" for more on this.
  
  
• Opt-outs: Where members ask to opt out, the Pensions Regulator tells trustees to make them aware that they will lose future employer contributions; may lose any other benefits that scheme membership provides, such as death in service benefits; and can contact the Pensions Advisory Service for guidance.  As the pandemic is brought under control, trustees may want to contact members who have left the scheme and remind them of any rights they may have to opt in or re-join.
  
  
• Advisers and other service providers: Check that your various advisers and other service providers have a business continuity plan and will be able to follow it. Ask them to tell you immediately if anything changes.
  
  
• 'Force majeure' clauses: Where they are triggered, these clauses can allow an administrator or other service provider to cease providing services or to avoid service level requirements. If such a clause might apply in the current circumstances, consider the issues and what you would do if the provider seeks to rely on it.
  
  
• Contribution changes: You should understand what effect any changes to working arrangements will have on pay, contributions and benefits (including death benefits) – eg, self-isolation, premises shutdowns or enforced leave, and where the employer takes advantage of the government's Coronavirus Job Retention Scheme. (See also our briefing on pensions aspects of this scheme).
  
  
• Business continuity plan: The Pensions Regulator expects trustees to have a business continuity plan. For those that do not, it is not too late to put one in place.

• Decision making: Are there arrangements in place for the trustee board to communicate and meet virtually to take decisions? Does the scheme constitution have any particular requirements in this regard? If so, do they need amending to accommodate the new way of working?
  
  
• Illness: Is the trustee board able to continue operating if individuals fall ill and are unable to participate? What arrangements are there for such circumstances? Can a deputy chair act in place of an incapacitated chair?  Do the quorum requirements need consideration? Trustee governance documents may need to be amended to reflect any changes.
  
  
• Signing authorities: Review signing authorities to ensure that individuals with appropriate authority are available to sign legal documentation and operational instructions, including whether a facility for electronic signature (such as DocuSign) has been set up.

• To communicate or not?: There will not normally be any legal requirement to communicate with members but in specific circumstances you may wish to do so – for example if there are delays in any scheme processes that it has not been possible to avoid. As an alternative, consider preparing stock answers to expected questions and (if applicable) putting them on the scheme website.  Also warn members again about pension scams – see below.
  
  
• DC benefits: Members will be concerned about investment market falls and reduced fund values. If you are communicating with them, they might be pointed towards existing guidance on long-term investment, choosing funds and 'lifestyling' changes. Or this can be prominently highlighted on any scheme website.  Be aware that some DB members may not understand that market falls do not directly affect their DB benefits.  The Money and Pensions Service website is a useful resource to which DC and DB members can be signposted.
  
  
• DC members approaching retirement: Some DC members nearing normal pension age may wish to delay taking their benefits, in the hope that some recent investment losses can be recouped. Do the scheme rules allow this?  If not, can/should they be amended?  Members further from retirement may wish to reconsider when 'lifestyling' changes to equity fund holdings begin – the existence of the option to change this could be communicated, in neutral terms.
  
  
• Death benefit nominations: If you are communicating with members, you might consider including a sensitive reminder about ensuring that death benefit nominations are up to date. You may, on the other hand, consider that bringing this up might only add to members' anxieties.

The Pensions Regulator's 29 April guidance says that if trustees are contacting members over the next few months (e.g. sending annual benefit statements), they should highlight:

• what current market volatility might mean to members retiring over different future time periods;
  
  
• the need to think carefully and consider getting investment advice before switching funds in the current market (to avoid crystallising losses);
  
  
• the danger of scam activity (there is already an FCA/TPR ScamSmart flyer that TPR asks trustees to include) ; and
  
  
• free impartial guidance available from the Pensions Advisory Service.

• Investment advice: Speak to your investment advisers and ask them about the appropriateness of the scheme's investment strategy in the current circumstances. Have weaknesses been exposed?  Have market movements created possible investment opportunities?  Does a devalued covenant (see below) mean that there should be changes to the investment strategy? Remember that you need to consult the employer about a change to investment strategy.
  
  
• Balance of investments: Have market movements resulted in a need to rebalance your investments? Consideration may need to be given to whether the trustee will be a forced seller or forced buyer at a sub-optimal time.
  
  
• Derivatives: Has the value of collateral been reduced by market falls, resulting in a need for additional collateral to be provided? Do you have enough liquidity to be able to satisfy such a margin call?
  
  
• Liquidity: Does the scheme need more cash than usual at the moment, for example due to suspended or reduced employer contributions (see below), delays in realising investments, or to make death benefit payments (including any delays in receiving funds from insurers)?
  
  
• Mortality: In the longer term, ask the actuary for advice on the appropriateness of the scheme's mortality assumptions.

Our April 2020 briefing note Investment Insights for Pension Funds is devoted to the economic crisis caused by COVID-19.

• Increased deficit: Have market falls materially increased (or created) a scheme deficit? Is there ongoing exposure?  If so, consider reviewing the investment and funding strategies and recovery plan.  Also consider contingent asset possibilities.  In extreme situations, do transfer values need to be reduced?
  
  
• Covenant: Has the employer (or a guarantor's) covenant been materially affected, perhaps due to its business being in a particularly affected sector? If so, seek advice from your covenant adviser or consultants.  Keep in mind that there may be long as well as short term issues. If necessary, review the investment and funding strategies and consider contingent asset possibilities, to reduce reliance on the employer covenant.
  
  
• Reducing or suspending contributions: If the employer is very financially weakened, it might be appropriate in some circumstances to allow a reduction or suspension of employer contributions. Key questions about a reduction or suspension of contributions will relate to the affordability of contributions and how other stakeholders are being asked to share the pain.  Consider whether the Pensions Regulator needs to be brought into the conversation. 
  
  The Regulator posted a web page on this topic in the current context on 20 March: "Guidance for DB scheme trustees whose sponsoring employers are in corporate distress". This includes a list of key questions to ask the employer and principles to keep in mind when considering requests to delay deficit repair contributions.
  
  This was followed by further guidance for trustees and employers on 27 March. That guidance, applicable until at least 30 June, recognises that there may not be enough information immediately available for trustees to be able properly to consider a request to reduce or suspend contributions.  In these circumstances, trustees may agree to requests "for as limited a period as possible while appropriate information is being provided", to be not more than three months.  The trustee guidance includes much more on considerations for trustees when presented with such a request.
  
  
• Contingent assets: Has there been a negative change in a guarantor's credit rating? If so, does this have any effect under the terms of a guarantee or other contingent asset?

The Pensions Regulator's announcements also remind trustees about integrated risk management.

The Regulator's 2020 annual funding statement is particularly relevant to DB schemes with valuation dates between 22 September 2019 and 21 September 2020 and other schemes undergoing significant changes that require a review of their funding and risk strategies.  It sets out guidance on how to approach the valuation under current conditions and addresses various matters in relation to employer covenant, including assessment and monitoring and the dangers of "covenant leakage" through shareholder distributions and other ways. 

• Flexible approach: The Pensions Regulator's 9 April update "COVID-19: an update on reporting duties and enforcement activity (9 April)" outlines its more flexible approach to reporting requirements and enforcement in some areas. With some exceptions noted in the update, if a breach will be rectified within a short timeframe (not more than three months) and it does not have a negative impact on savers, there is no need to report. The Regulator will take decisions about whether to take regulatory action on a case-by-case basis. "Notifiable events" under the Pensions Act 2004 still need to be reported.
  
  
• DC chair's statements: Here, the Regulator has no enforcement discretion under the regulations but it says "we will continue to impose fines if schemes don't comply with this requirement. However, to ease the burden for schemes, we will not issue penalty notices before 30 June 2020. … We will not be reviewing any chair's statements we receive, for example through master trust submissions or via annual reports and accounts, before 30 June 2020. Any such statements will be returned unread, and not reviewed. This should not be taken as any indication that the statement in question complies with the requirements."

• Possible employer insolvency: The PPF has a publication "Contingency planning for employer insolvency: Important areas for trustees' action". Are you as ready as you could be for the possibility of the scheme sponsor undergoing an insolvency procedure and the scheme entering PPF assessment?
  
  
• Contingent asset certification: With regard to the 31 March 2020 contingent asset certification/recertification deadline, the PPF announced that it would no longer accept any hard copy documentation: there were alternative arrangements for soft copy submission.