The regulator’s hands-off approach regarding employer pension payments must not be seen as an opportunity for chancers pushing for pension holidays that are not justifiable, warns columnist and Financial Times pensions correspondent Josephine Cumbo.
On a personal level, retirement insecurity has increased for millions of savers and investors, who have seen the value of their pension funds plummet as uncertainty over the scale of the outbreak took hold of global stock markets.
On the corporate side, trustees of thousands of defined benefit schemes are facing difficult decisions as employers, who have been hard hit by the outbreak, seek to pause pension payments.
Meanwhile, scheme managers have also had to make major adjustments to their operations as they shifted to home working with the lockdown, to ensure that pensions continue to be paid.
While there is a need to be pragmatic, regulators must now guard against chancers and opportunists using the crisis for their own gain
Authorities have swept in with wide-ranging emergency measures to prop up the crisis-hit economy, and to ease the regulatory burden on businesses facing cash and staffing challenges.
Some of these key measures include breathing space for employers struggling to make required pension contributions.
The regulator has also given its blessing to schemes opting to pause DB pension transfer requests for up to three months, to lighten their administrative load and reduce the risk of members falling prey to scammers.
Long-term projects also delayed
Measures to boost consumer protections have also been affected by the coronavirus outbreak, most notably activity to stamp out pension transfer mis-selling. However, the introduction of several other big protections, including for drawdown savers, has also been pushed back until next year.
The introduction of an expected ban on contingent charging, the controversial fee model used by pension transfer advisers, has also been delayed.
Significantly, a major regulatory probe into the transfer market has been halted.
In ordinary times, these measures would cause deep alarm among consumer campaigners. But these are not ordinary times.
While there is a need to be pragmatic, regulators must now guard against chancers and opportunists using the crisis for their own gain.
One area that is prone to abuse is employer pension payments. Emergency measures introduced by the Pensions Regulator at the end of last month, effectively give trustees the green light to sanction deficit repair contribution holidays of up to three months.
Given the extreme situation, the regulator has said trustees can agree to employer requests for pension holidays, without having all the information they would typically need to feel comfortable about this move.
The regulator is also not expecting trustees to seek its approval for these requests, and has said it will not come after them later for decisions made in “difficult circumstances”.
Strong companies must not shirk responsibility
TPR is quick to point out that it is not encouraging, authorising or compelling a particular course of action.
It expects trustees to do the right thing for their situation and members, and make sure the scheme is treated fairly, by not being pushovers.
While this hands-off approach may be a pragmatic response to the times, the light touch regulatory environment has opened the door to chancers pushing for pension holidays that are not justifiable.
The regulator needs to support trustees coming to it who are concerned about inappropriate payment requests from employers. Going forward, it needs to be very clear when contribution holidays will end.
TPR will not seek to punish trustees over tough pandemic decisions
Regulatory executive David Fairs has reassured defined benefit trustees that they will not be pursued over decisions they make in response to employers struggling in the wake of Covid-19.
Equally, the Financial Conduct Authority needs to guard against lobbying to more permanently water down, or scrap, planned consumer protections, that have been long-planned and justified. In recent weeks it has delayed the roll out of several major reforms, designed to boost retirement security for millions of pension savers, including better qualifications for pension transfer advisers.
There is no denying that regulators have a difficult balance to strike between supporting business and consumer protections, in highly uncertain times such as these.
But in striking this balance, they must guard against the long-term risk of pension protections becoming a victim of the coronavirus.
Josephine Cumbo is pensions correspondent for the Financial Times
