One in five sponsors considering deficit holidays

The pensions advisory company surveyed more than 380 trustee and corporate clients, finding that in 12 per cent of cases the sponsor company had already requested DRC suspensions – from these, 6 per cent had been accepted by trustees with another equal number currently under consideration.

At the end of March, the Pensions Regulator launched new guidance aimed at helping employers freeze their DB obligations for three months in response to the economic fallout from coronavirus.

According to Isio, respondents indicated that a further 7 per cent of sponsors are considering DRC suspensions but have not yet approached the trustees – which could lead to a total 19 per cent of companies requesting a deficit holiday.

The survey also showed that in the vast majority of cases to date – more than 95 per cent of those considered – the trustees had accepted the sponsor’s request.

The research concluded that the majority of requests (63 per cent) have only sought a suspension for temporary relief for up to three months, until more reliability on covenant visibility is available.

However, nearly a quarter (23 per cent) requested a six to 12-month extension in situations where other creditors committed to support for longer periods, and restrictions on trustee extensions would limit that support.

According to Mike Smedley, partner at Isio, the survey findings “clearly show that trustees are heeding the advice of TPR and accepting a reduction or suspension of DRCs where required”.

“Trustees are right to take decisive action and be flexible during the current market environment, but they need to remain diligent and monitor the situation closely,” he said.

“With two-thirds of suspension requests only seeking a short-term relief from DRCs, we expect further conversations to occur in the coming months and weeks as trustees seek to implement creative longer-term solutions.”