Managing UK Defined Benefit Pension Costs during Covid-19

With many businesses facing significant financial challenges as a result of Covid-19, we are working on possible solutions for those corporate sponsors with significant financial obligations to fund defined benefit pension liabilities, by exploring the potential deferment or renegotiation of deficit repair contributions. The UK Pensions Regulator announced on 20th March 2020 that it recognises the difficulties employers are experiencing and will take a proportionate and risk-based approach with the aim of helping employers get back on track.

Employers in financial distress should engage with pension trustees now, to discuss the change in circumstances and the economic impact of the coronavirus. Some key issues are as follows:

• employers should be clear on the powers in their pension plan rules and, in particular, whether they contain sufficient flexibility to allow temporary suspension of contributions;
• pension funding legislation recognises affordability constraints, by allowing companies and trustees to extend the period over which deficits are repaired or reshaping contribution levels;
• employers and pension trustees should consider the pension fund’s investment strategy and, where possible, take steps to protect underlying investments; and
• employers should be aware of pension trustees’ other concerns, such as ensuring essential administration services continue and how the sponsor's covenant may be affected by the crisis.

If you would like to discuss the implications for you and your business, as well as potential solutions, please contact Danny Tsang, Edward Smith or James Dean.

See our Coronavirus (COVID-19) feature for more information generally on the possible legal implications of COVID-19.