Impact on pension schemes of the current Covid-19 crisis

In conversation with Edward Levy, Professional Trustee, LawDeb

"Last Friday, I joined a Society of Pensions Professionals panel to discuss the impact on pension schemes of the current Covid-19 crisis. This included perspectives from a covenant adviser, an actuary, an investment manager, a lawyer, an administration adviser and myself as a professional trustee.

The discussion highlighted the wide range of different issues that pension schemes need to consider at the moment, with covenant voted as the most pressing concern by the over 200 attendees.

Based on LawDeb’s recent experience I gave a perspective on some of the changes that have been needed by professional trustees in response to the Covid-19 crisis. To start with, the focus of many trustees has changed to the near term. In stark contrast to the normal long-term perspective of paying benefits over the next 50 years or so, the immediate focus has been on paying the monthly payroll with trustees getting into details that they often take for granted.

Governance arrangements have adapted quickly to be more flexible, with weekly calls looking at covenant, funding, investments and administration often by video conference, instead of the more measured quarterly trustee meeting cycle. We have already seen trustee boards thinking about how they may operate post lockdown, with some considering holding alternate meetings by video. Other governance considerations include delegation to sub-committees, decisions being made more quickly (and documented appropriately) and how to respond to non-availability of trustees including professional trustee directors.

At LawDeb we are ensuring that colleagues with specific knowledge of individual clients are available in case back-up is needed.

Paying pensions requires increased focus on short-term cash flows and which assets might need to be sold, as well as an understanding of investment managers’ signing requirements. Fortunately, most now accept an electronic approach rather than relying on wet signatures.

At LawDeb, we have seen relatively few requests to defer Deficit Reduction Contributions up to now. These have been from clients operating in the hardest hit sectors such as hospitality. More broadly, even clients with strong covenants are now focusing more closely on costs, with increased scrutiny on pension scheme expenses and requests to defer less urgent projects. Covenant is likely to remain an area of particular focus for some time.

Overall, there is a need for more frequent communication with the whole trustee board, advisers and the sponsor, and importantly pension scheme members. DB pensioners will appreciate reassurance that benefits will continue to be paid. DC members can be reminded of the long-term nature of their pension arrangements. It is also important to convey crucial messages about not making knee-jerk responses to current events and also watching out for scammers.

Even more than usual, trustees need to keep a regular and close eye on developments across all areas, including TPR pronouncements which can act as a useful checklist, not to mention the views of the different advisers. The challenge is then to focus on the immediate priorities of individual schemes, without losing sight of the long-term objectives."

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