The UK Pensions Regulator has issued a number of detailed guidance notes, some of which may have originally been prepared with Brexit in mind and which are now providing some much needed direction for trustees, employers and administrators during the Covid-19 crisis. In response to industry comments on the guidance, a spokesperson for the UK Regulator has said: “Our initial guidance deals with the key issues that trustees, sponsors, and administrators need to prioritise….based on their available resources. We consider paying benefits and investing contributions as key”.
The Pensions Authority Announcement
The Irish Pensions Authority issued its initial COVID-19 announcement on 27 March. The Announcement asks that scheme trustees contact their administrators and service providers to assess the effect the crisis is having on the operation of their schemes. The Announcement requests that the following confirmations are prioritised for trustees:
That payments to retired members are paid in full
That other benefits are paid in a timely manner, and
That contributions paid by members and employers are remitted to the trustees promptly by the employer
In the Announcement, the Authority confirms that it is aware of the difficulties facing trustees during the crisis when it comes to completing many tasks and it confirms that it will take current circumstances into account. The Announcement warns against the taking of rash investment decisions and cautions against reactions to market volatility. It also urges scheme members to contact their trustees if they have any queries about their pension investments. The Announcement also contains a warning on the remittance of contributions and cautions that it is a criminal offence not to remit employee contributions to a group scheme or a PRSA provider within the statutory time limit.
Uncertainty emerging from the Emergency Measures Act 2020
Though the Pensions Authority makes no reference to the Emergency Measures in the Public Interest (Covid-19) Act 2020 in its Announcement, the Act requires mentioning here for the simple reason that it lacks any reference to pensions. The Act has left employers that are availing of the wage subsidy scheme in a quandary. The amount an employee receives from the State as a subsidy cannot be reduced so any employee contributions can only be taken from the “top-up” amount, if any. The effect the payment of the subsidy may have on the level of employer contributions also needs to be considered. Revenue has confirmed that it is open to an employee to elect to make a “non-ordinary” or “special” contribution to her/his pension scheme before their return filing date for the 2020 tax year. When doing so, as the subsidy is part of an employee’s “net relevant earnings” for pension purposes, the subsidy received will be counted towards the employee’s age-related percentage limit and overall earnings limit for the purpose of calculating tax relief.
This stands in stark contrast to the UK scheme which explicitly provides cover for the minimum automatic enrolment contribution level of 3%. The UK Government has also provided clarification that “furloughed workers” are covered by its scheme. Furloughed workers are employees have been asked to stop working as their employers cannot cover staff costs due to the Covid-19 crisis, but have not been made redundant.
The UK Pensions Regulator
As noted, the UK Pensions Regulator has issued a number of useful guidance notes during the crisis. We gather some of the key points and recommendations made by the UK Regulator as they might be indicative of the position that the Pensions Authority may adopt.
UK Guidance for trustees
The UK Regulator’s guidance dated 20 March 2020 asks for trustees of both defined benefit (DB) and defined contribution (DC) schemes to focus their activities on the key risks to members, such as the payment of benefits to retired members and maintaining sponsoring employer contributions. It also says that members may require support in making good decisions in these circumstances and notes that the risk of investment scams should be minimised.
The scams mentioned by the UK Regulator are those that attempt to lure members to transfer benefits and invest in “safe haven” assets. The 20 March Guidance recommends that where members contact trustees with such a request that they ask members to “exercise extreme caution”. While there is no doubt that this is useful guidance, trustees will need to ensure that they are not taking this a step further and providing financial advice to members.
The 20 March Guidance confirms that the UK Regulator expects administrative breaches of the law to occur, given the circumstances, and says that it will “maintain a proportionate and fair approach” in any action that it takes. The Pensions Authority has adopted a somewhat similar approach and confirms in its Announcement that it “will of course take into account current circumstances when assessing the trustees’ compliance with their obligations.”
UK Guidance for administrators
The 20 March Guidance asks that administrators prioritise the payment of benefits, retirement processing and bereavement services. In the case of the death of a member, it will be crucial to assist the deceased’s family and personal representative as much as possible given that many families may find themselves struggling with redundancy and household costs as well as the death of the member. The UK Regulator also suggests that to maintain these core services, administrators may need to delay responses to non-critical member queries and the production of annual benefit statements.
UK Guidance for employers
For employers, the UK Regulator states that it “will take a proportionate and risk-based approach towards enforcement decisions, in light of these challenging times, with the aim of helping to get employers back on track and supporting both employers and savers”. In further guidance, aimed specifically of sponsoring employers of DB schemes, the UK Regulator states that it expects:
The trustees of DB schemes to be provided with regular updates on employer outlook and contingency planning.
Employers to make all reasonable endeavours in providing trustees with the information that they need to assess the impact on the employer covenant and the affordability of deficit repair contributions (DRCs).
UK Guidance for trustees
The UK Regulator issued further guidance on 27 March 2020 for trustees of DC and DB schemes. For DC schemes the guidance covers investment issues and for DB schemes it covers both investing and funding issues.
Defined Contribution Schemes
For trustees of DC schemes it recommends that a review of investment governance and delegations is undertaken to ensure that they can continue to function and to make decisions in the event of a trustee becoming ill. The 27 March Guidance recommends that DC scheme trustees also review any previously agreed risk management or investment decisions which were to be implemented at a future date and before there was any indication of the Covid-19 crisis. The aim of this recommendation is to ensure that losses are not crystallised or new risks introduced to a scheme’s investment portfolio.
Defined Benefit Schemes
The 27 March Guidance confirms that the UK Regulator does not expect trustees of DB schemes that are close to completing valuations to re-visit assumptions. However, where recovery plans are being agreed, the 27 March Guidance urges trustees to consider the “post-valuation experience”. The 27 March Guidance also notes that trustees should be open to allowing a reduction or suspension of DRCs. Though it recommends that where such a suspension is sought, trustees should ensure that shareholder dividends or returns are also suspended.
Trustees, employers and administrators will need to ensure that they are prioritising the correct actions. The Pensions Authority Announcement is welcomed, but further guidance on specific issues will be required. Commentators have suggested that the UK Regulator’s guidance shows a reliance on trustees to make judgements on the correct priorities for their schemes and to ensure that they are communicating with administrators and investment managers on their business continuity plans. Where trustees, employers or administrators deem professional advice necessary before making a judgement call, it should be sought without delay.
For more information and guidance relating to the operation of your pension scheme during the COVID-19 crisis, contact a member of our award winning Pensions team.
The content of this article is provided for information purposes only and does not constitute legal or other advice.