One if five DB schemes may suspend pension deficit contributions, according to new research from Isio.
Isio — formerly the pensions advisory arm of KPMG, which launched as an independent company in March this year — surveyed 400 clients to understand the approach they were taking to suspended deficit reduction payments (DRC) and cash equivalent transfer values in relation to Covid-19.
It said 12 per cent of corporate clients surveyed had already requested DRC suspensions, of which 6 per cent had been accepted by trustees, with a further 6 per cent actively under consideration.
The Pensions Regulator has recently announced that schemes will be allowed flexibility when it comes to these deficit repayment, in light of the economic lockdown and subsequent financial pressures on many firms.
In the vast majority of cases to date – over 95 per cent of those considered – the trustees had accepted the sponsoring companies request to suspend these payments.
If this figures is applied across the UK this equates to around £200m per month of deficit contributions being unpaid.
The responses indicated that a further 7 per cent of sponsors are considering DRC suspensions but have not yet approached the trustees – which could lead to a total 19 per cent of sponsoring companies suspending DRCs.
The survey also showed that the majority of suspension requests (63 per cent) have only sought a temporary suspension of up to three months, until more reliability covenant visibility is available.
However, nearly a quarter (23 per cent) requested a six to twelve month extension.
Isio says its research showed that eight out of 10 trustees (80 per cent) know when deferred DRCs are meant to be paid.
The survey also found that almost a third (27 per cent) of trustee clients had suspended quotation for cash equivalent transfer values, because of market falls caused by the Covid-19 crisis.
Isio partner Mike Smedley says: “The findings of our client survey clearly show that trustees are heeding the advice of TPR and accepting a reduction or suspension of DRCs where required.
“Trustees are right to take decisive action and be flexible during the current market environment, but they need to remain diligent and monitor the situation closely.
“With two thirds of suspensions requests only seeking a short-term relief from DRCs, we expect further conversations to occur in the coming months and weeks as trustees seek to implement creative longer-term solutions.”
