Watchdog probes Covid pension suspensions for abuse

Regulators are investigating a number of companies’ pension schemes for suspected abuse of measures which allowed employers facing coronavirus-induced financial pressures to suspend payments into workers’ retirement funds.

As part of its response to the Covid-19 pandemic, the Pensions Regulator relaxed its guidance in March to allow distressed employers with defined benefit pension schemes to take payment holidays of up to three months.

In June, the regulator advised pension scheme trustees to not “unquestioningly” agree to extensions of these contribution holidays without checking if employers’ requests were appropriate.

The watchdog said it had received about 200 revised pension payment plans from schemes where employers had taken advantage of extensions to contribution holidays.

But the regulator also revealed it was questioning a number of schemes where it was not clear whether they had behaved appropriately.

“A proportion of [the 200] have clearly followed our advice and done what we asked them to do in terms of the action that they have taken,” said David Fairs, the watchdog’s executive director of regulatory policy.

“[However] there are some where it is less clear that they took account of our advice. We are asking those schemes further questions and looking into the decisions that they made.”

Mr Fairs added the regulator might take action against schemes if “we don’t think what they have done is appropriate”.

The regulator declined to disclose how many schemes it was investigating.

The watchdog’s emergency measures in March gave trustees scope to agree to employer requests for pension payment holidays of up to three months, without heavy scrutiny of the companies’ financial position.

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But in June the regulator said it did not expect trustees to agree to extend payment holidays without undertaking due diligence on an employer’s financial position, and ensuring the scheme was not being unfairly treated compared with other creditors, including lenders.

Mitigations trustees were advised to seek before agreeing to further contribution holidays included requiring the employer to halt dividend payments if it was not meeting its pension obligations.

The Pensions Regulator said: “We will review trustees’ decisions to ensure that our guidance has been followed and take a case-by-case approach as to whether enforcement action is appropriate or necessary.”

Enforcement action could include employers being required to make good on pension payments into schemes, if inappropriate behaviour has been identified, added the regulator.

Some legal experts said the regulator’s emergency measures may have been understood in different ways by schemes.

“I do think the guidance was open to interpretation,” said Rosalind Connor, managing partner with Arc Pensions Law, a law firm.



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