We’re all in this together….

Whilst that isn’t the exact phrasing used by The Pensions Regulator in its latest guidance to trustees and employers on Covid-19, published on 27 March, that was definitely my key take away.

In these unprecedented times, many employers are facing disruption in areas such as site closures, remote working, supply restrictions and demand uncertainty. Whilst we, at Dalriada, are seeing employers at different stages of dealing with the impacts of the Covid-19 pandemic, depending on their industry sector; geographic footprint; customer base; and supply chain, the result is significant financial uncertainty for many, and having access to liquidity will be key to survival.

Where liquidity is a major concern for employers the Regulator recognises that pension schemes may be part of the solution. In its latest guidance we have seen the Regulator put employer sustainability back at the forefront of scheme funding, and over the last few days, as employers have been exploring the support that may be on offer, we have seen a marked escalation in the numbers of our clients seeking to defer deficit repair contributions.

The Regulator has, however, made it clear that any easements granted should be:

• based on an informed assessment;
• as short term as possible (3 months is suggested); and
• caught up within the current recovery plan period. 

Whilst some trustees may have read the 27 March  guidance as relaxing the hurdles needed to agree a short-term deferral,  I still believe it remains incumbent on employers to provide the information necessary for trustees to properly consider any deferral request.

In approaching trustees, we would expect employers to be prepared to address the following questions:

• What is the scheme being asked to defer? What amount and for how long?
• What is the employer’s liquidity position? How much cash/(facilities) are available and for how long? Has the company prepared a short-term cash flow or done any scenario planning that can be shared?
• Are other creditors being asked to support? What are the banks being asked to do?
• Has government support been explored? HMRC deferrals, seeking support for furloughed staff?
• Is there any “leakage” out of the company  during the period of deferral e.g. payment of dividends or repayment of group loans?

The main theme here, and in the guidance, is the equality of treatment of the scheme with other stakeholders – shareholders, lenders, intercompany and government. From experience to date, most employers asking for support from schemes are doing all the right things. Most are forecasting cash on a weekly, if not daily basis, having proactive conversations with their lenders and pulling all levers available to conserve cash.

Whilst the scheme has a role to play in this crisis, so do all stakeholders. We’re all in this together.