Network Partner, Western Pension Solutions discuss the implications of Covid-19 on final salary schemes.

For this Network Partner the last week has been astonishing and they have been on the front-line advising family businesses on their final salary pension schemes. Otherwise strong and prudently managed businesses have been brought to their knees by this crisis. Whilst trustees and sponsors of pension schemes are being asked to consider entire checklists of pension issues related to Covid-19, the only thing that really matters to most sponsors is whether they can afford to continue paying cash contributions into their schemes.

The Pensions Regulator issued its Covid-19 guidance for trustees and sponsors on Friday 20th March. This includes the process trustees must follow before agreeing to a request by a business for a deferral of deficit recovery contributions. Whilst this brings a degree of welcome clarity and flexibility, it’s so far proving very challenging for businesses focussed on matters such as operational safety and maintaining jobs to provide even the minimum information trustees are being told to request to meet the Regulator’s detailed requirements. It’s adding to the frustration that trustees are being encouraged to take costly advice. Whilst most businesses can rely on trustees to respond pragmatically and speedily to requests, some trustees are inexperienced in dealing with these matters. Where a professional trustee firm is involved it can sometimes be difficult for them to ignore such detailed and prescriptive guidance to act quickly and commercially. Many family firms will have family members on the trustee board. They in particular will be concerned about how best to balance their responsibilities to a very broad range of stakeholders in a rapidly changing environment.

The situation is becoming even more acute for large family businesses who are now beginning to realise that they don’t qualify for the Government’s lending support schemes: CBILS or the CCFF. The Coronavirus Job Retention Scheme is an extremely helpful and important initiative, but until the rules are properly understood, it’s creating additional operational complexity and uncertainty for overstretched management teams.

Almost all business will be facing similar cash constraints, but each situation will be different depending on the size and timing of contribution payments. Where the Scheme is in its triennial valuation cycle will also influence the range of options available to each business and the outcome.

Western Pension Solutions are advising those businesses in severe distress to get your request in early with as much information (and as much reassurance) as you can reasonably provide. Any form of communication with trustees will be better than simply failing to make payments. You can always follow up with more information as and when you can provide it. For those that have more time to plan, it will probably make sense to prepare a more comprehensive request, which includes detailed cash flow forecasts and a summary of how the business is making efforts to treat all stakeholders fairly.

If you are a family business that needs help, then Western Pension Solutions are offering a free helpline on 0207 726 2718.