The impact of the Coronavirus on the pension industry has been widespread, ruthless and relentless; from the law makers, regulators, trustees, employers, pension funds to scheme members.
As the country goes into self isolation and chaos ensues we try to make sense of it all.
Pension Schemes Bill 2019-21
The Pension Schemes Bill 2019-21 came to an abrupt halt on the 4th March as it passed through the committee stage in the House of Lords. All Bills were suspended as the emergency Coronavirus Bill was rushed through parliament.
The Pension Scheme Bill has now been suspended until after Easter as Parliament went into early Easter recess on 26th March till 21st April.
The Pension Scheme Bill has yet to pass through the report stage and third reading before going on to Royal Assent. The Bill had already been delayed in December by the elections.
The Pension Scheme Bill has provisions to introduce new anti scam safeguards for defined benefit pension transfers. At this stage it is still unclear when the Bill will pass.
The Pension Regulator
On the 20th of March the Pension Regulator published a COVID-19 update for trustees, employers and administrators. The notice gave guidance and expectations on what needs to be done in the “unprecedented, challenging and uncertain times” caused by the Coronavirus:
Trustees of both defined benefit (DB) and defined contribution (DC) schemes, employers and administrators should focus their activities on the key risks to pension savers:
- benefits need to be paid
- the risk of scams needs to be minimised
- employers need to continue contributing
- savers need support to make good decisions in these challenging circumstances
- some administrative breaches of the law may occur and we will maintain a proportionate and fair approach to any action we may take
We are closely monitoring the COVID-19 situation, and working collaboratively with government, regulators and other bodies to assess the most immediate risks to pension schemes.
The coronavirus notice is a stark warning that The Pension Regulator is preparing for a worse case scenario.
Financial Conduct Authority
In July 2019 the FCA published its final proposals to reform DB transfer advice which included plans to ban ‘contingent’ charging. The FCA have now delayed the long awaited publication of the new defined benefit pension transfer rules for six months. The FCA CP19/25 web page was updated on 23rd of March, but no formal announcements have been made:
We will publish our finalised Handbook text in a Policy Statement in the second quarter or third quarter of 2020.
The Pension Regulator published Guidance for DB scheme trustees whose sponsoring employers are in corporate distress.
The notice lays bare the very real prospect that many corporations will be under huge amounts of financial distress with many being unable to continue to trade for the next 13 weeks. With the possibility of corporations being unable to meet their DP pension key payment dates in the next three months:
The impact of COVID-19 (coronavirus) and the measures taken to contain it have been swift and severe. This heightens the need for trustees to understand the corporate health of their defined benefit (DB) scheme’s sponsoring employer and consider any previously drafted contingency plans. You will need to consider this alongside any impact of falls in asset values on your scheme.
Engaging with the employer will be complicated by the many new demands on their time resulting from managing the impact of the situation and the fact that, with many fundamentals of business operations changing in a dramatic and unpredictable way, forecasting will be difficult. Nevertheless, as a key stakeholder, you should be kept informed with the best available information, but also accept that this will not be as robust as it would normally be.
DB Pension Scheme Deficits
A recent report estimates an additional deficit of £100bn was added to DB pension schemes in February caused by the impact of coronavirus. The current total DB pension scheme deficit now stands at £500bn. These figures were announced at the start of the stock market crash. The true figures will be much worse as stock markets continued to crash in March. The report estimates that deficit could rise to an eye watering £900bn.
There are now talks of The Pension Regulator allowing employers to defer deficit repair contributions (DRCs).
Businesses large and small have felt the full impact of the coronavirus, with many shutting up shop completely as the country goes into self isolation. The government has introduced a £330bn package of support for employers to retain furloughed employees.
The Money Marketing recently reported that the Pension Regulator is going to publish new guidance that takes a softer line on the enforcement of auto-enrolment contributions. Many employers are finding it impossible to pay their employees let along meet their auto-enrolment contributions whilst the country goes into lock down.
Lots of businesses will become casualties of the coronavirus with the likelihood of a global recession or even depression looming large on the horizon.
Many employees are finding themselves under acute financial distress caused by coronavirus, with many being laid off, made furloughed or made unemployed. Adding to their distress is the certainty their pension pots have reduced in size.
For some, who are reaching retirement age, cashing in their pensions early because of coronavirus could be a lifeline in providing financial stability in these uncertain times. For others, who have defined benefit pensions, may want to exercise their pension freedom rights and take early retirement.
Those who have seen their pension pots reduce in size now face rebuilding their retirement funds. There are calls for the government to increase the tax relief on pension contributions from £4000 to £10,000.