On the go: Up to £1bn in deficit contributions could be suspended this year as trustees approve payment holidays in a bid to help sponsors survive the Covid-19 crisis.
The estimate comes from a Financial Times survey of professional services companies advising more than half of the 5,500 employers with defined benefit pension schemes.
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 a survey from Mercer, 89 per cent of clients indicated they would seek to suspend, rather than reduce their deficit repayment contributions, with most of these requests being made for periods of between three months and a year.
“If roughly 10 per cent of employers look to suspend DRCs, which is the level indicated so far, then we could be looking at £1bn or more suspended over the year,” said Charles Cowling, chief actuary at Mercer.
“If the Covid-19 lockdown continues, then requests for suspensions are likely to increase.”
The research showed that so far 44 per of trustees have agreed to the request. The others are requesting information or taking legal advice, while 7 per cent have rejected the appeal from their sponsors.
Alumasc, supplier of building products, is one of the latest employers to propose a payment holiday.
In a market update on Monday, the company, which sponsors the Alumasc Group Pension Scheme, stated that it had obtained a deferral of three months’ pension contributions from the scheme trustees.
These payments amount to £575,000 in aggregate, which would otherwise have been payable between April and June 2020. The deferred value will be recovered between July 2020 and the next revaluation in March 2022.
According to its latest annual report, the Alumasc scheme – which is the result of a merger of two separate DB pension funds – had a deficit of £33m in 2016, which is expected to have decreased to £20m in 2019.
