16: Pensions and COVID-19: business continuity, contingency plans and Regulator guidance

The global response to COVID-19 continues to evolve and it presents extraordinary challenges that were hard to imagine a few months ago.

For pension schemes, the Pensions Regulator has set out its expectation that trustees will have appropriate monitoring and contingency planning in place and that they will be alive to risks that would have a significant consequences for their scheme and members.

Those who have already taken steps to manage risk and put in place business continuity and disaster recovery plans may now see this preparation put to the test. For all schemes, it will be time to think about their processes and obligations and take practical and reasonable steps to reduce the risk of disruption to payments and other services to members and to ensure that schemes continue to run to the best of their ability.

We have considered some key issues in our note below and at the end we have updated you on our business contingency plans and how we will continue to help our clients operate business as usual as far as possible.

For its part, the Pensions Regulator is suspending regulatory initiatives and working collaboratively with government, regulators and other bodies to assess risk and provide guidance.

Service providers

Many trustees will be reliant on professional service firms to provide day to day services to members. Most firms will have well developed and tested business continuity plans in place and will have already started communicating these to you. If they haven’t then you should ask them to confirm what plans they have in place.

A key risk here will be under-resourcing due to increases in work volumes or unavailable staff. Trustees should understand how work will be carried out and which scheme activities will be prioritised in the event of under-resourcing, for example pensioner payments, retirement processing and bereavement services.

The Pensions Regulator is separately asking trustees and administrators to report to them immediately if they think they will not be able to pay benefits and has stated it will take a pragmatic approach.

Member communications

The plunge in value of the world’s stock markets and the potential for delays and interruptions to pension payments could see an increase in member queries that will add pressure to potentially stretched resources. Trustees should consider a communication to reassure members about the business continuity plans in place or perhaps set up and direct members to a web page that answers a number of key concerns.

Pension scams

The Pensions Regulator warns that personal financial uncertainty for employees could mean they are more vulnerable to pension scams attempting to lure them to ‘safe havens’. Trustees should be vigilant and signpost members to the Money and Advisory Service.

Time critical projects

Many schemes will be in the middle of or just about to embark on a specific project such as liability reduction exercises, certification of contingent assets with the PPF or scheme closure that are business critical to sponsoring employers.

In some cases there may be room to change timescales but if not, trustees should carefully consider what steps are needed to complete the project, whether critical staff and decision makers will be available and how the practicalities of completing the project have changed and can now be achieved. Contingency plans should also be put in place in the event that timescales can’t be met.

Trustee meetings and making decisions

Most scheme rules (or articles of association for corporate trustees) will permit meetings to be held by phone or video conference. Trustees should check their governing documents and make arrangements to hold meetings remotely.

Trustees should also check the provisions for holding quorate meetings and designation of a chair or replacement chair if some trustees are unavailable. It may be worth identifying individuals who could step onto the trustee board if necessary.

Practical matters such as the process for delegating authority, the operation of sub-committees and authority to enter into documents should also be carefully considered and it may be necessary to update signature lists and liaise with third party providers (such as investment managers) to ensure the trustee board has the authority to act.

Scheme funding and investment

The potential for adverse economic impact is enormous and so trustees should engage with their sponsoring employers to understand the potential impact on covenant and the contingency and continuity plans in place to help minimise that impact.

If employers seek flexibility on short term funding obligations, trustees may need to consider this and whether other forms of security might be suitable, even on a short term basis. The Pensions Regulator has set out a number of questions for trustees to ask to establish the impact of COVID-19 on employers.

It also recognises that a short term suspension of deficit recovery contributions may be appropriate and that trustees should consider any request carefully to ensure that any support given is part of a co-ordinated and fair response across key stakeholders.

Trustees should get clarity on the timing for requests, challenge deadlines that are unnecessarily short and make sure they have adequate information given the time available, to make an informed decision, including taking advice from covenant and legal advisors. If time is short, trustees should consider short term deferrals with a more considered discussion to follow and ultimately they should also understand what triggers will restart contributions.

To protect member security and reduce reliance on employer covenant trustees may also want to talk to their investment managers and advisors to ensure that the current strategy is appropriate and robust. Planned changes to strategy may also need a rethink or further analysis.

What is BDB Pitmans doing?

Please be assured that we are doing everything possible to maintain the level of service you have come to expect from BDB Pitmans.

The safety and wellbeing of our staff and clients is a top priority and we have implemented robust and tested systems to allow our staff to work remotely while still providing a seamless service to our clients.

We have telephone and video conferencing call facilities to enable us to talk to our clients and attend meetings and provide business as usual as far as possible.

We will ensure that key, essential staff members will be able to work in our offices where necessary and as a firm we have heightened attention to our office processes and procedures so that we can operate our business in a way that means we can focus on your needs.

Our clients can expect a call from us so that we can make sure we understand what they need and how they will work so that we can support them to meet their obligations to their scheme and its stakeholders.