Pensions Regulator provides more guidance on the impact of the Coronavirus emergency on pension schemes
On 20 March, the Pensions Regulator followed up its initial short statement on the Coronavirus emergency (see Pensions Bulletin 2020/12) with some fuller guidance ranging over a number of topics.
This guidance, for trustees, employers and administrators, reprises the earlier message for trustees to be alive to risks with a significant consequence for their scheme and its members and asks trustees to make clear which activities should be prioritised in the event of under-resourcing.
DB sponsoring employers in corporate distress
A separate web-page sets out questions that trustees should ask of the DB scheme’s sponsoring employer in order to obtain an insight into the latter’s corporate health, before going on to consider how to deal with employer requests to defer deficit repair contributions. The Regulator’s position is that trustees need to consider any such request carefully to establish the need for the deferral and ensure that any support given by the trustees is part of a co-ordinated and fair response across key stakeholders.
To that end the Regulator asks trustees to ensure that they are well advised from those with experience in situations of corporate distress and restructuring. The Regulator also recommends where trustees are compelled to respond to such requests within a very short timescale, they ensure that any concessions are short term deferrals to enable information to be provided later for a more considered decision.
The Regulator promises to provide guidance on other elements of DB schemes, such as investments and liquidity, in the coming weeks.
Pension scams
The guidance mentions the possibility of a heightened risk of scheme members falling victim to pension scams, prompted by the instability of their employer or the financial markets. Trustees are asked to urge those contemplating transferring their pension at this time to exercise extreme caution and visit ScamSmart. Trustees are also asked to signpost their members to the Money and Pensions Service.
Scheme administration
Administrators are asked to prioritise payments of benefits, retirement processing and bereavement services, as well as any administrative functions required to support these. Trustees and administrators should report to the Regulator immediately if they believe they will be unable to pay members’ benefits – for its part the Regulator promises to be pragmatic in its response.
Employers
The Regulator promises to take a proportionate and risk-based approach towards enforcement decisions.
Regulatory communications, publications and events
All regulatory initiatives are temporarily suspended with the Regulator promising to get in touch with those who were selected to take part. The Regulator’s Corporate Plan, its long-term strategy and its consultation on bringing together its codes of practice to form one single code (see Pensions Bulletin 2019/28) are all postponed. The timings of the Regulator’s open DB funding consultation (see Pensions Bulletin 2020/09) will be reviewed in the coming weeks. All scheduled events have either been cancelled or moved.
Comment
These are useful further statements from the Regulator, clearly trying to hold the line whilst seeking to be pragmatic in these times of uncertainty, but there is clearly more to come.
PPF goes ahead with new D&B insolvency risk score methodology
The Pension Protection Fund has confirmed the Dun & Bradstreet (“D&B”) based insolvency risk score methodology that will be used from April 2020, following a consultation launched in December 2019 (see Pensions Bulletin 2020/01).
In a policy statement published on 19 March, the PPF said that the methodology used in live scoring from the end of April 2020 will be broadly as consulted on, including the removal of the Standard & Poor’s credit model for banks, building societies and insurers.
One notable exception is for credit ratings, where the PPF undertakes to review how credit ratings from S&P, Moody’s and Fitch map to insolvency scores as part of the wider consultation on the non-D&B insolvency score policy due in mid-2020. The statement also sets out the detailed analysis undertaken on points raised by respondents and confirms that an alert system notifying companies and schemes when levy bands or scores change should be available on the portal from May.
This means that pension schemes and their associated employers can now look at the insolvency scores held on the D&B portal with greater certainty. Companies that previously self-submitted accounts information to Experian have been encouraged to submit that information to D&B if it is not already being picked up, and stakeholders have been encouraged to review the information held on the system.
The deadline for submitting information to affect the April 2020 score is 30 April 2020, after which the cut-off date to be guaranteed to be included each month will be the end of the previous month.
Although the final rules for the 2021/22 levy year will not be settled until this coming December (with further consultations from “mid-2020” onwards), the PPF says that it will monitor developments related to the Coronavirus outbreak carefully and consider what, if any, changes to its rules are necessary in view of these exceptional circumstances.
Comment
The insolvency score formulae haven’t changed as dramatically as they could but it’s worth checking your sponsoring employers’ scores are as expected – in particular D&B may hold different information or derive a different ultimate parent to Experian for a number of companies.
PPF begins next phase of increased “Hampshire” payments
The Pension Protection Fund has started increasing payments to pensioners whose PPF compensation fell below the minimum 50% of the value of their scheme benefits required as a result of the Hampshire case (see Pensions Bulletin 2019/08) for a combination of reasons. The initial phase saw members affected only by the compensation cap receive increases, but now those also affected by significantly higher increases in their original scheme or different benefits, for example higher spouse’s pensions, will see their pensions increase.
This is a difficult exercise for the PPF as it simply does not hold enough information to calculate the correct level of pensions for all those receiving compensation payments from it. Anyone asked for additional information is asked to reply with as much information as possible.
There is still an outstanding legal case, due to be heard in the week beginning 11 May, that could affect the way the PPF implements the Hampshire case. Before the judgment in this case is received the PPF will only pay increased tax-free lump sums to those who have retired and/or whose scheme transferred to the PPF after 5 September 2012 who have had their new calculation for at least a year. No arrears of increased compensation are being paid as yet.
Comment
There is progress in paying those affected by the Hampshire case the right PPF compensation, but uncertainty surrounding both the available data and the legal position makes this a difficult exercise. The PPF is targeting 90% of those entitled to an increase receiving one by the end of March 2021, but it may be some time longer before the necessary arrears are settled.
Finance Bill published
Following the 11 March Budget (see Pensions Bulletin 2020/11) the Government has now published the Finance Bill necessary to enact measures that will have effect from this fiscal year, including the customary re-setting of income tax rates which would otherwise lapse.
In keeping with the Budget there are relatively few matters of note from a pensions perspective, as follows:
- Clause 5 sets the main rate of corporation tax at 19% for financial years starting on 1 April 2020. It had been due to reduce from 19% to 18% from this point. The freezing of the rate will mean that employer pension contributions will attract greater corporation tax relief than had the 18% rate gone ahead
- Clause 21 contains the changes to the tapered annual allowance applicable from the 2020/21 tax year onwards and is as expected in its effect on high earners (for a reminder of the details see this blog and factsheet)
- Clause 95 moves HMRC up a notch in the insolvency priority order in relation to taxes collected and held by businesses ahead of transmission to HMRC, such as VAT, income tax and employee NICs. This clause, which was first seen when the Government published a draft of the Finance Bill last July (see Pensions Bulletin 2019/29), will result in there being less money for unsecured creditors, such as occupational pension schemes, but the overall effect for schemes is likely to be minor. It comes into operation for insolvencies falling on or after 1 December 2020
We wait for the necessary Order to increase the Lifetime allowance to £1,073,100. The Bill is silent on the promise to change tax legislation so that collective money purchase pension schemes can operate as registered pension schemes, but we would expect to first see the necessary clauses in a draft of a future Finance Bill.
Comment
This year’s Finance Bill is a very modest affair, weighing in at less than 200 pages, but this belies the significance of the Budget and the announcements made by the Chancellor since to address the Coronavirus emergency.
MaPS urges everyone to review their finances during the coronavirus pandemic
The Money and Pensions Service is encouraging people to pay extra attention to their financial wellbeing during the coronavirus pandemic and to consider what protective steps they can take now to avoid money worries later on.
Its guidance, published on 18 March, ranges across a number of financial matters, acknowledging that this health-based emergency will for some create a financial emergency too.
Comment
The online guidance provides some useful pointers and links for those worried about matters such as getting behind on mortgage payments and utility bills, with a practical suggestion right at the start of making an emergency budget. However, its guidance on pensions is sparse. Nevertheless, as a first resource for many of us who will be worrying about how to cover our normal outgoings in this time of great uncertainty, this is precisely the sort of useful online help we would expect to see from MaPS.
