TPR has issued some straightforward, practical guidance to assist Trustees currently grappling with the many issues that the upheaval created by the coronavirus has caused
- Employer requests to suspend/reduce deficit repair contributions
- Schemes currently completing 2018 or 2019 valuations
- Schemes with a 2020 valuation
- Release of security provided to the scheme
- Requests for transfer values
- Investments
TPR has issued some straightforward, practical guidance to assist Trustees currently grappling with the many issues that the upheaval created by the coronavirus has caused. TPR Covid 19 Guidance.
Employer requests to suspend/reduce deficit repair contributions – TPR states that trustees should be open to such requests but should bear in mind the principles set out in their earlier guidance (TPR Guidance where employer is in distress), notably, having full disclosure and ensuring the Scheme is treated fairly when compared to other stakeholders. TPR has stated that, if a reduction or suspension of contributions is agreed,
there should be a legally binding commitment to pay no dividends/other distributions. Where trustees are unable to get full information then TPR indicates only a short suspension of up to 3 months might be provided.
Trustees should take advice on both whether a suspension/reduction of DRCs is appropriate and the most appropriate method to do so (eg amendment of Schedule of Contributions (SOC) or short-term suspension
without amendment). This is to avoid unintended consequences such as missed payments accidentally triggering scheme wind-up. Ideally suspended/reduced contributions should be repaid within the current recovery plan timeframe. Any impact on scheme cashflows should be taken into account, particularly if this will otherwise mean selling distressed assets.
Schemes currently completing 2018 or 2019 valuations – TPR does not expect trustees to revisit their assumptions or take into account the current acute market volatility. However, they do expect trustees to consider whether provisionally agreed deficit funding contributions are still affordable. Trustees can delay the submission of their Recovery Plan by up to 3 months after the statutory deadline.
Schemes with a 2020 valuation – TPR intends to issue a statement after Easter. Whilst it is possible to carry out the valuation at an alternative, earlier date, it would sensible to wait until this guidance is issued. It is also worth noting that, when agreeing contribution requirements, account can be made for changes in market conditions after the valuation date.
Release of security provided to the scheme – TPR has stated that the release of any security that a sponsoring employer has provided to underpin a scheme is unlikely to be in the best interests of the members.
Requests for transfer values – TPR is concerned that there is heightened risk of members being targeted by scammers and believes trustees should give greater scrutiny to transfer requests. TPR recognises that trustees may need time to review the terms of transfer values and that an increase in transfer requests could be a burden on administration teams. Therefore, TPR will not take any regulatory action against trustees who suspend CETV activity for a period of 3 months. After 3 months, trustees may decide to continue with the quotation of CETVs or continue with a suspension but they will then need to notify TPR of this.
Investments – TPR recognises that most schemes are long-term investors and recommends that trustees consider how short to medium term cashflows will be met, whether automatic investment rebalancing should proceed as usual, review any previously agreed investment and risk management decisions, be aware of any specific risks which may now exist within their portfolios or sponsor’s covenants, review the appropriateness
of the derivative positions and structures they hold (including collateral arrangements), assess whether they should make any changes to their investment and risk management governance framework.
Trustee boards should take on board TPRs guidance and consider holding a special meeting to discuss these issues and document any decisions made.
