Last Friday, the Pensions Regulator published further guidance for trustees and employers related to COVID-19. This includes additional guidance on funding and investment for trustees and sponsors of DB schemes, guidance on suspending transfer values for DB schemes and guidance on investment for trustees of DC schemes. The guidance can be found on the Regulator’s new COVID-19 hub.

In its latest guidance, the Regulator reiterated that it may be appropriate for trustees of DB schemes to agree to defer deficit reduction contributions (DRCs) for a limited period of time, subject to certain safeguards. The Regulator also gave the green light for trustees to suspend transfer values for DB schemes for an initial period of up to three months to protect members against scams and to ease the pressure on scheme administration. It is important that trustees consider promptly whether to implement a suspension and, if so, how this will operate.

More generally, the Regulator has indicated that it is important for trustees to continue to fully document their decisions, whether they seek advice or not.

DB schemes
1. Deferring deficit recovery contributions

The latest guidance from the Pensions Regulator for trustees and sponsors on deferring DRCs builds on its previous guidance issued on 20 March (a summary of which can be found here).

The latest guidance reiterates that it may be appropriate for trustees to agree to defer DRCs for a limited period of time and subject to certain safeguards, including that:

  • any deferral should be for no longer than three months if the trustees are not able to fully assess the employer’s position as per the Regulator’s 20 March guidance
  • trustees need to carefully consider any requests to suspend or reduce DRCs if they are expecting annual or substantial contributions during the proposed suspension period
  • before agreeing a DRC waiver, trustees should ensure that banks and other funders are supporting the business and that no dividends or other distributions are being made from the employer (with this commitment not to pay dividends or other distributions being underpinned by a legally binding agreement). However, the Regulator recognises that, in exceptional circumstances, it may be appropriate for employers to make extraordinary and essential intra-group payments to support the wider group’s liquidity and going-concern status
  • a condition of any agreement to defer should be full and ongoing provision of information from the sponsor so that trustees can monitor the employer covenant
  • trustees should consider taking independent external covenant advice where a request to reduce or suspend DRCs is received or where a sponsor is experiencing distress. Trustees should consider whether taking real time specialist advice (e.g. verbal advice backed up by an e-mail or written advice, instead of a detailed report) is appropriate, given the current urgency of matters for some schemes and sponsors
  • the Regulator expects trustees to offer only short-term concessions of no more than three months until such time that more reliable covenant visibility is available. However, extensions beyond this may be appropriate where other creditors commit to support for longer periods and restrictions on trustee extensions would limit that support. Any longer suspension should ideally be underwritten by any available protections
  • trustees should take legal and actuarial advice not only on whether a suspension or reduction of DRCs is appropriate, but also on the most appropriate method to suspend or reduce them and, in particular, whether an amendment of the scheme’s Schedule of Contributions is necessary. This is to avoid unintended consequences such as missed payments accidentally triggering scheme wind-up
  • trustees should be mindful of and be prepared to manage any potential conflicts of interest (between their role within the employer and their role as a trustee) in the current circumstances, and
  • ideally, the Regulator expects suspended or reduced contributions to be repaid within the period covered by the current recovery plan and it makes clear that the current recovery plan should not be lengthened unless there is sufficiently reliable covenant visibility (for example, if the existing recovery plan is short).

2. Future service contributions

The Regulator’s latest guidance states that requests to suspend or reduce future service contributions, for employers and possibly members, should be treated in the same manner as requests to suspend or reduce DRCs. However, there are additional issues trustees should consider (such as whether this is allowable under scheme rules) and so it recommends legal advice is taken before any deferral is granted.

3. Actuarial valuations

Many schemes may be close to completing actuarial valuations with an effective date in late 2018 or early 2019. They will be looking to agree schedules of contributions and, where applicable, recovery plans based on those valuations.

For these schemes, the guidance makes clear that the Regulator does not necessarily expect trustees to revisit the actuarial assumptions (where these have already been set), although some trustees may be advised that it is in the best interests of their members to do so.

For many schemes, their current funding position, calculated using these assumptions, will be significantly worse and the deficit materially larger than at the date of the valuation. The Regulator does not require trustees to allow for any higher deficit in their recovery plan. However, it does expect trustees to take account of relevant post-valuation experience in considering the rate and timing of contributions that an employer can reasonably afford to pay under that plan.

Some trustees may consider it to be in the best interest of their members to take more time to consider the impact of the current situation on the scheme and the sponsor rather than submit a valuation and associated documents which may need to be re-negotiated soon. The Regulator recognises that it might be appropriate for trustees to delay submitting their valuation by a short period of up to three months, in these circumstances. This may mean that the trustees fail to meet the 15 month statutory deadline for completing and submitting their valuation. Although the Regulator cannot waive trustees’ statutory obligations it confirms that it does not intend to fine trustees for late submission in these circumstances. Having said that, if trustees are ready to complete their valuation and they think it is in the best interest of their members to do so, they should submit it now.

For schemes that have a valuation approaching, the Regulator plans to include further guidance on the approach that it expects trustees to take in light of the current economic climate in its 2020 annual funding statement, which it plans to issue after Easter.

4. Investments

With regards to investments, the Regulator expects trustees of DB schemes to:

  • review their scheme’s cash flow requirements and how they expect those obligations to be met. They should allow for issues such as additional ‘cash strain’ arising from increased member movement, potential reduction in or suspension of DRCs, lower levels of investment income and investment ‘cash calls’
  • review and manage specific risks which may now exist within their portfolios or within their sponsoring employer’s business, such as concentrations of risk and/or exposures to deteriorating sectors/credits
  • review any previously agreed investment and risk management decisions due to be implemented in the future to ensure they remain appropriate, efficient and do not introduce risks or crystallise losses
  • review their investment governance structures and delegations to ensure they can continue to function and make decisions in the event of trustee incapacity or absence, and
  • assess, following the recent performance of their scheme, whether they should make any changes to their investment and risk management governance framework.

5. Suspending transfer values

In light of the heightened risk of members being targeted by scammers and unscrupulous financial advisers at this time, the Regulator has said that trustees can suspend cash equivalent transfer value (CETV) quotations and payments if they want to, in order to give themselves time to review CETV terms and/or to assess the administrative impact of any increase in demand for CETV quotes.

This may result in trustees breaching the legislative requirements relating to issuing CETV quotations and paying CETVs. However, the Regulator has confirmed that it will not take regulatory action in the next three months against trustees who suspend CETV activity.

The guidance goes further and says that, after three months, trustees may decide to continue with any CETV suspension or delayed quotation if this is still in the best interests of their members. However, they should be clear on the reasons for doing so and they should notify the Regulator.

This is a helpful easement and enables trustees to respond to the heightened risk of scams and, where relevant, to ease pressure on scheme administrators and/or to give themselves time to review their CETV factors (for example, due to a deterioration in their scheme’s funding position). It is important that trustees take immediate steps to consider whether to suspend the payment of CETVs (and non-statutory transfers) under their scheme as any failure to do so could expose the trustees to complaints if a member transfers in the coming days or weeks and the transfer subsequently turns out to be a scam.


If trustees decide to suspend transfer values they need to agree with their administrators how this will be implemented and, in particular:

  • whether the suspension will apply to all transfers, including transfers that are already being processed, or whether it should just apply to transfer values after a particular date (e.g. 1 March) where the risk of members being panicked into making decisions by the economic impact of COVID-19 or by scammers or unscrupulous advisers who may be taking advantage of the current climate may be considered to be greater, and/or
  • whether the suspension should only apply to transfers identified as being high risk (e.g. due to the number or nature of the red flags associated with them).

Trustees may decide to suspend transfers for a short period initially (such as one month) to give themselves time to develop a more detailed policy, to see how the current situation evolves and to see whether there is an uptick in transfer requests and whether the requests received raise particular concerns regarding potential scam activity. In any event, trustees should keep any decision to suspend transfer values under regular review.

Alternatively, if trustees decide not to suspend the payment of transfer values under their scheme they should discuss with their administrator:

  • what steps should be taken to alert members to the heightened risk of scams, and
  • whether any changes could/should be made to the due diligence process where a transfer request is received (for example, schemes could require all members who request a transfer in the next few months to be contacted by phone to establish the reasons for the transfer and to alert the member to the heightened risk of scams in person).


DC schemes
6. No suspension of auto-enrolment contributions

At present there is no easement to allow employers and/or members to suspend their automatic enrolment contributions. The Government has also confirmed that for the purposes of the Job Retention Scheme, under which the Government has committed to covering 80% of the wages of ‘furloughed employees’ (up to a cap of £2,500 per month), an employee’s wages includes minimum employer auto-enrolment contributions.

However, a number of questions remain. In particular:

  • the guidance specifically refers to minimum auto-enrolment employer contributions equal to 3% of qualifying earnings and it is unclear how the scheme will operate where an employer pays auto-enrolment minimum contributions on a basis other than by reference to qualifying earnings (for example, by reference to basic pay or all earnings)
  • where an employer is required to pay more than the minimum auto-enrolment employer contributions into its scheme on behalf of one or more furloughed employees it may be required to continue to pay the full employer contribution (and the employee’s full salary) unless it agrees a contractual change with the relevant employees, and
  • ordinarily, an employer would need to consult with affected employees for a period of 60 days before it reduces the rate of employer contributions to a DC scheme. It is possible that the Pensions Regulator would not enforce this requirement where an employer is reducing contributions for a temporary period in response to the current economic climate. However, it has not yet confirmed this.

7. Investments

With regard to DC investment funds, the Regulator expects trustees to:

  • consider how individual members might react in the current environment to headline market/fund value falls or reduction/loss in earnings as members could make inappropriate decisions, crystallise losses or be exploited by scams
  • review and manage specific risks that may now exist within their portfolios or with their service providers, for example in relation to sector exposures/concentrations in certain funds
  • review any previously agreed investment and risk management decisions to be implemented in the future to ensure they remain appropriate, efficient and do not introduce risks or crystallise losses
  • review their investment governance structures and delegations to ensure they can continue to function and make decisions in the event of trustee incapacity or absence, and
  • assess, following the recent performance of their scheme, whether any changes to their governance framework or provider arrangements should be made at an opportune time.

Trustees of DC schemes also need to be alive to the issues that may be caused by particular funds (such as property funds) being gated as this will restrict the ability for funds to be withdrawn and made available to members.

What next?
The regulatory easements in this announcement will be maintained until 30 June 2020 and the Regulator will review this date as matters progress.

The Regulator is considering whether any additional or more specific flexibilities or restrictions are required and it will issue further guidance on these and other related topics over the coming weeks. The Regulator is also planning to publish its 2020 annual funding statement after Easter.

In the meantime, relationship-managed schemes can contact their named supervisor to discuss any issues. Other schemes can contact the Regulator via

We’re here to help
If you have particular concerns about your scheme or sponsor please contact us.

Follow the latest news on the impact of COVID-19 on UK pension schemes and sponsors on our UK pensions blog. For updates on the wider impact check HSF’s COVID-19 hub.

Related bulletins
This bulletin should be read alongside our previous COVID-19 updates which can be found here:

COVID-19: Pressure points: Pensions Regulator and PPF issue guidance for trustees of DB schemes with distressed sponsors (UK)

COVID-19: Pressure points: Immediate actions for pension scheme sponsors and trustees (UK)


Tim Smith
Tim Smith
Professional Support Lawyer, London
+44 20 7466 2542
Cathryn Marson
Cathryn Marson
Senior Associate, London
+44 20 7466 2775