This briefing was last updated on 27 October 2020.
The Pensions Regulator has published several pieces of guidance for trustees, employers and administrators on coronavirus related issues.
Our summaries here are very abbreviated and intended as an indication of the content of the guidance. They are not a substitute for looking at the guidance itself.
The Regulator is generally taking a proportionate and risk-based approach to enforcement in light of the challenging situation and its approach has been evolving.
This initial guidance told trustees, employers and administrators to focus their activities on key risks to pension savers, including the payment of benefits, minimising the risk from scams, and continuing contributions. Trustees were told to assess their business continuity plan and to contact their administrator regarding theirs and to prioritise activities.
Trustees were told to tell members asking about transferring-out to exercise extreme caution and visit the ScamSmart website. They should also signpost members to the Money and Pensions Service (MaPS) website.
Reports to the Regulator should continue as normal but the Regulator will be pragmatic. Trustees and administrators were told to report immediately if they believe they will be unable to pay members' benefits.
The Regulator's regulatory initiatives are suspended but one-to-one and relationship supervision will continue. The DB funding code framework consultation deadline is extended by three months to 2 September 2020.
On an un-noted later date, the content was replaced with much shorter text, with the original content now covered by other guidance pages. It was updated again on 2 July.
Guidance for DB scheme trustees whose sponsoring employers are in corporate distress (20 March)
This guidance has now been merged into the DB scheme funding and investment guidance for trustees (see below).
As originally written, it said that trustees should be kept informed by sponsoring employers with the best available information but also accept that this will not be as robust as it would normally be. It listed questions for trustees to ask the sponsor to help them to assess its covenant. Trustees were told that they should consider the Regulator's integrated risk management guidance, the possibility of provision of contingent assets and whether the scheme is being treated fairly in comparison to other creditors, shareholders and associated companies.
It also listed key principles to underpin consideration of employer requests to delay paying deficit repair contributions (DRCs). Where timescales are very short, any concessions should be short term deferrals to enable information to be provided later for a more considered decision.
This guidance originally said that employers should give trustees regular updates on employer outlook and contingency planning and should make all reasonable endeavours to provide trustees with the information they need to assess the impact on employer covenant and the affordability of DRCs.
As amended on 16 June, it says that employers should keep trustees informed of discussions with other stakeholders (e.g. banks) which may impact on the position of the scheme. Employers under financial pressure can work together with trustees to identify how best to make use of professional advice and how it can be paid for. The Pensions Regulator will be "reasonable" (originally this said "pragmatic") in scenarios such as where trustees are being asked to agree to deficit repair contribution reductions or suspensions, or the employer granting security over assets. The guidance no longer includes a 30 June end date.
A major rewrite and update of this guidance was published on 16 June. It includes new content and content previously in the separate guidance for DB scheme trustees whose employers are in corporate distress.
The original 27 March guidance said:
- Trustees who are close to completing valuations are not expected to revisit their assumptions and are not required to take into account post-valuation date experience (except when considering DRCs). Recovery plan submission (i.e. including valuation completion) can be delayed by up to three months if trustees need more time to assess the situation.
- Trustees should be open to requests to reduce or suspend DRCs in line with the Regulator's 20 March principles (see above). Where sufficient information is not available to make a fully informed decision, trustees should, where appropriate, agree to requests to suspend or reduce DRCs for as limited a period as possible while appropriate information is being provided. Particular care needs to be taken if there is an imminent large contribution. This should not be longer than three months if the trustees are not able to fully assess the employer’s position. A condition should be full and ongoing provision of information so that trustees can monitor the employer covenant. In agreeing DRC waivers, trustees should ensure that banks and other funders are being supportive and that no dividends or other distributions are being made (which should be underpinned by legally binding commitments).Requests to suspend or reduce future service contributions, for the employers and possibly members, should be treated in the same manner as requests to suspend or reduce DRCs. Legal issues may arise.
- An employer’s request that trustees release security is likely to have significant legal and financial implications, compromising the security of members’ benefits. Trustees should take specialist advice.
- Trustees should consider whether real time, specialist advice is required and should continue to continue fully to document their decisions.
- Regarding investments, trustees should: review their scheme’s cashflow requirements; review and manage specific risks which may now exist within their portfolios or within their sponsoring employer’s business; review any previously agreed investment and risk management decisions due to be implemented in the future; review their investment governance structures and delegations to ensure they can continue to function and make decisions; and assess, following the recent performance of their scheme, whether they should make any changes to their investment and risk management governance framework.
- Trustees may decide to suspend cash equivalent transfer value (CETV) quotations and payments to give themselves time to review CETV terms and/or to assess the administrative impact of any increase in demand for quotations. This may mean a breach of disclosure requirements but the Regulator will not take regulatory action in the next three months. Thereafter, trustees may decide to continue with the CETV suspension or delayed quotation if this is still in the best interests of their members but they should be clear on the reasons and should notify the Regulator. Trustees should also give greater attention to the heightened risk of members being targeted by scams. Please see our briefing "Pension transfers in the time of coronavirus" for more on this.
The 16 June rewrite and update included the following new key points:
- Schemes should generally now be able to assess the employer's financial position and review in more detail the case for any new or continuing suspension or reduction of deficit repair contributions to ensure that it is appropriate and the scheme is being treated equitably. The guidance lists examples of possible protections or mitigations, which now includes:
- a suggestion that on a refinancing, trustees could "seek the same recourse and access to security/valuable assets, for example, with the deferred sums being given the same protections as the new money lending"; and
- a statement that, "as part of any agreement to concessions, trustees should ensure they will continue to receive appropriate and regular forward looking and actual financial information to identify changes in circumstances of the employer and the position of its funders".
The guidance now says that trustees should consider requiring that dividends and other forms of shareholder distribution do not start again until the unpaid or suspended contributions have all been paid. Previously, it went no further than referring to payments not being made during the period of suspension or reduction.
The Regulator says that around 10% of DB schemes have sought to defer contributions but notes that there are discussions about doing so in others.
- The Regulator acknowledges that contribution deferrals can be done either with a revised recovery plan or by reporting missed contributions. In either case it expects an explanation and lists other information it would like trustees to provide.
- If covenant has worsened and is not expected to recover in a reasonably short timeframe, trustees should consider whether to update funding arrangements, e.g. by calling a new valuation and/or revising the recovery plan.
- The Regulator "will continue to take a reasonable approach to late submission [of recovery plans] caused by COVID-19 issues".
- The general regulatory easement on schemes that miss DB transfer deadlines has been withdrawn but the Regulator will take a pragmatic approach.
- Reporting requirements apply as normal from 1 July. The Regulator "will continue to regulate pragmatically and sympathetically".
Please also see our briefing "Investment Insights for Pension Funds".
This says that: trustees should consider how members might react to headline market/fund value falls or reduction/loss in earnings – e.g. making inappropriate decisions, crystallising losses or being exploited by scams; trustees should review and manage specific risks that may now exist within their portfolios or with their service providers; trustees should review any previously agreed investment and risk management decisions to be implemented in the future; trustees should review their investment governance structures and delegations to ensure they can continue to function and make decisions; and trustees should assess, following the recent performance of their scheme, whether any changes to their governance framework or provider arrangements should be made at an opportune time.
On 13 May, this guidance was amended to include guidance on dealing with employer proposals to reduce DC contribution rates and to state an expectation that trustees and administrators should prioritise DC transfers as core financial transactions.
On 21 May, a section was added on how diverting DC contributions to a new investment fund option following the gating (temporary closure) of an investment fund (e.g. a property fund) can create a new default fund. This can bring into play the charges cap and require the preparation and disclosure of a new default fund statement of investment principles. On 30 June a section was added about resuming investment when the gating ends. In October, this was amended to note that trustees may decide that resuming investment in a fund after gating ends does not create a new default arrangement.
This is a press release quoting the Regulator, the FCA and MaPS, urging individuals to keep calm and not rush into any decisions about their pension. It warns about scams and pensions being a long-term investment.
This tells trustees to work with their administrators to make sure they can deliver critical processes and core functions. It notes what some of these might be and says that new or updated process should be in line with PASA's COVID-19 guidance for administrators. Trustees are again told to contact the Regulator if they believe they will be unable to pay benefits on time.
The 16 June update makes particular mention of making sure that administration services are available to vulnerable customers and others who may not have internet access.
This says that automatic enrolment, automatic re-enrolment and payments of contributions should continue in line with existing requirements. Employers who think they may not be able to make their pension contributions are told that they should contact their pension provider in the first instance to explore whether there is flexibility to change the due dates.
It also clarified that the employer contribution claim that can be made under the Coronavirus Job Retention Scheme for 3% of qualifying earnings is regardless of the basis on which DC contributions are paid to the scheme. On 17 April, it was amended to state that where the employer pays contributions for a furloughed worker of less than the automatic enrolment minimum, it can only claim based on what it actually pays.
Regarding the Pensions Act 2004 "listed change" consultation requirement for employers with 50 or more employees who (among other things) wish to reduce the employer contribution rate, it says that the Regulator will not take regulatory action "in respect of a failure to consult for the full 60 days" in specified circumstances, including where only furloughed staff are affected and the employer has written to affected staff and their representatives. Employers are encouraged to carry out as much consultation as they can.
On 6 May, "DC" was inserted in the title and more detailed content was added. The 15 June update extended the employee consultation easement until 30 September 2020.
The Regulator originally asked scheme providers to report late contribution payments (to members as well as to the Regulator) at 150 days late, rather than the 90 days set out in code of practice 5 for occupational pension schemes and code 6 for personal pension schemes. (This change was reported in the pensions press on 27 March, apparently based on letters to providers, but was not announced publicly by the Regulator until it issued this guidance on 9 April. There was no similar public statement addressed to trustees but some received letters.) NB See the guidance immediately above regarding the Regulator's expectations about the ongoing payment of contributions.
On 16 September, the Regulator asked providers and trustees to resume reporting no later than 90 days after the due date from 1 January 2021. From 1 April 2021, this is mandated.
This guidance originally outlined the Regulator's more flexible approach to its reporting requirements and approach to enforcement. If a breach would be rectified within a short timeframe (not more than three months) and it did not have a negative impact on savers, there was no need to report. The Regulator will take decisions about whether to take regulatory action on a case-by-case basis and adopt a flexible approach.
It also listed particular approaches in particular areas, including some where the approach will not apply (e.g. for notifiable events).
Regarding DC chair's statements, where the Regulator has no enforcement discretion under the regulations, it said "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."
It said that despite the concession on reporting late payment of DC contributions, it is very important that trustees invest contributions promptly when they are received.
The 16 June update says that reporting requirements and enforcement activity revert to normal from 1 July 2020 but lists exceptions:
- Providers should still hold off from reporting late contributions (other than DRCs) until 150, rather than 90, days have elapsed.
- DC chair's statements sent to the Regulator will continue to be returned unread, until 30 September, and will not be reviewed.
- The Regulator will continue to take a pragmatic approach to late scheme accounts, until 30 September.
- The Regulator does not expect to take regulatory action if a statement of investment principles (SIP) or DC default arrangement SIP review is delayed, but again only until 30 September.
A 16 September update announced the following changes:
- The Regulator has asked providers and trustees to resume reporting late contributions no later than 90 days after the due date from, 1 January 2021. From 1 April 2021, this is mandated.
- The Regulator will resume reviewing chair's DC governance statements that it receives from 1 October (but not those received before then).
This provides technical guidance, including worked examples, about pension contributions and CJRS claims where there is a salary sacrifice arrangement and/or where there is certification of DC contributions (i.e. usually where pensionable pay is not the same as automatic enrolment "qualifying earnings"). It notes that there may need to be a discussion with the payroll provider to ensure that contributions are correctly deducted and paid and that employers can potentially change their method of complying with DC automatic enrolment requirements and claim more under the CJRS.
The 15 June update notes and reflects the changes to the CJRS from July and its ending at the end of September, and the possibility of part-time work for furloughed employees from July. For more detail, see our Employment department's briefing.
This page for trustees and administrators focuses on communicating with members. It addresses the increased prevalence of scams and the higher risk of hasty member decisions following, for example, adverse market movements, fears of employer insolvency, constrained personal finances and a desire to pass on pension savings in the event of early death. It outlines the Regulator's expectations of what members should be told and when, including as to disrupted services; scams and other risks associated with transfers; opt-outs; and market volatility.
See also the Regulator's updated pension scams page.
This 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 resulting from the coronavirus 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.