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.
In a video interview with actuarial consultancy LCP, the Pensions Regulator’s executive director for regulatory policy, analysis and advice said trustees will not be challenged if they allow deferred contributions, but should document their choices.
The watchdog effectively gave the green light to employers to restructure their pension commitments to manage their cash flows in an update released late last week, with trustees asked to do their best to gather information about their covenant, and to ensure that other creditors are treated equally.
Some trustees are reporting that they have had a very large increase in transfer value requests, other trustees aren’t seeing any requests coming through
David Fairs, TPR
The fallout of the Covid-19 pandemic has delivered a triple shock to many DB schemes; hammering their growth assets, swelling their unhedged liabilities, and reducing their sponsors’ ability to make good any deficit.
“We aren’t here to go back and challenge trustees who are going to be asked to make difficult decisions, potentially on incomplete information. What we’re really doing here is asking trustees to do the very best they can under difficult circumstances,” Mr Fairs said.
However, he said that trustees should carefully follow the regulator’s existing guidance on requests to defer DB contributions, and that those with upcoming actuarial valuations should pay particular attention to TPR’s annual funding statement, expected in April.
Inside Insight With David Fairs from Lane Clark & Peacock on Vimeo.
“Because this is a fast-moving situation, we do want trustees to document their decisions. That’s not for us to come back and retrospectively challenge the decision that trustees make,” he added.
The Pensions Ombudsman will reportedly also consider any complaints in light of the regulator’s guidance.
Trustees may also decide to delay the submission of their deficit recovery plans while they consider changes to employers’ ability to pay, although they do not need to revisit assumptions used in ongoing actuarial valuations.
Funding code consultation may be extended
Asked about possible changes to TPR’s work on a new funding code for DB schemes, Mr Fairs said that the importance it has placed on integrated risk management has been borne out by the fallout of the pandemic, but that the regulator may extend the deadline for responses to its consultation.
The watchdog has also released guidance to trustees on protecting members from scams, and has left trustees with the flexibility to decide if they wish to suspend transfer value provision while members are exposed.
“It seems that schemes are having quite different experiences. Some trustees are reporting that they have had a very large increase in transfer value requests, other trustees aren’t seeing any requests coming through,” Mr Fairs said.
USS sticks with March valuation despite battered funding level
Market volatility has seen the Universities Superannuation Scheme’s asset portfolio shed more than 13 per cent of its value and its deficit pass £11bn in recent days, triggering concerns, but as yet no action, from trustees.
He said a combination of wildly changing market conditions, administrator difficulties, targeting by scammers, and lack of suitable advice might prompt trustees to suspend provision of transfer values, but that they should communicate these drivers transparently to members.
Steven Taylor, a partner at LCP, said: “We welcome the further clarity that TPR has provided in light of the current situation, especially as regards the difficult position of trustees and what is expected of them.”
He added: “With regard to the DB funding code, we are sure that many would welcome extra time to respond to this important and detailed document, and to consider whether aspects of it remain appropriate in the light of recent shock events.”
