Coronavirus and pensions – practical steps for pension trustees

Ian Chapman-Curry: Hello, and welcome to this pensions webinar brought to you by the pensions team at Gowling WLG. I'm Ian Chapman-Curry and I&'m a legal director specialising in new and developing areas of law.

In this webinar, we'll be focusing on the global coronavirus pandemic and the impact it is having on the pensions industry.

In particular, we'll be looking at some practical steps that trustees can take to make sure that they are best placed to deal with these incredibly unusual times.

I don't need to spend much time introducing the subject of this webinar.

The coronavirus outbreak

At the end of 2019, the World Health Organisation's China office heard the first reports of a previously unknown virus behind a number of pneumonia cases in Wuhan, a city in the central Hubei province.

Since then, coronavirus, and COVID-19 - the disease caused by coronavirus, have become caused a global public health crisis on a scale not seen since the Spanish flu of 1918-19.

On the most up to date figures from John Hopkins University, there have been 472,109

confirmed cases of COVID-19. These have resulted in 21,308 deaths. On the more positive side, 114,870 patients are reported as having recovered.

The UK's response to the coronavirus outbreak

All of this has created a crisis response by governments across the world. In the UK, the Prime Minister announced on 24 March a series of severe restrictions aimed at curbing rates of infection and easing the pressure on the NHS.

The main message is for people to stay at home. The only exceptions are for essential shipping or medical needs, travelling to work if absolutely necessary and one form of exercise per day. Curbs on gatherings of more than two people were announced along with police powers to enforce the bans.

The impact on the economy

Unsurprisingly, the impact on business has been profound. The IHS Markit flash UK purchasing manager' composite index provides an indication of business confidence across the country's manufacturing and service sectors.

A figure above 50 in the survey indicates growth.

A figure below 50 suggests a contraction in economic activity.

In January, the economy rebounded from a pre-election slump to record a positive 52.7 score. In February, momentum picked up following the UK's formal departure from the EU with a score of 53. In March, however, the impact of the coronavirus is shown by a remarkably low score of [37.6]. This suggests that the UK is heading for a sharp recession.

This has been reflected with some of the most turbulent trading on global equity markets. The FTSE 250 has fallen from a peak of over 22,000 points to a low of 12,289, a fall of over 40%25.

The official government guidance for us to:

• Stay at home
• protect the NHS; and
• save lives

are necessary to curb the pandemic but are not conducive to economic activity.

A broad swathe of the economy was effectively put on ice with enforced closures following the Prime Minister's statement.

On top of this, other sectors such as travel, aviation, transportation and real estate have been directly affected. Most businesses will, in addition, have to deal with the additional costs of putting into effect business continuity plans and higher levels of staff sickness.

What is the direct impact on pensions of all of this?

On 20 March, The Pensions Regulator issued a statement for trustees of DB and DC occupational pension schemes - COVID-19: an update for trustees, employers and administrators.

In this statement, The Pensions Regulator focuses on key issues for trustees to prioritise. These include:

• The need to ensure that benefits are paid and are paid correctly and on time.
• The need to be extra vigilant on pension scams as people try to take advantage of people in desperate circumstances.
• Ensuring that employers continue to contribute to the schemes that they support – a tough issue that is already causing practical problems as employers ask trustees for flexibility on immediate contribution payments.
• Helping savers make good decisions in the face of volatile and highly unpredictable investment markets.
• The Pensions Regulator has acknowledged that at this time of extreme stress for the UK economy, there may be administrative breaches of the law. TPR has promised to maintain a proportionate and fair approach to any enforcement action they may take. So, no carte blanche for employers, trustees and administrators to do what they want, but, equally, some reassurance that TPR will be mindful of the highly unusual circumstances many schemes now find themselves in.

So, let's look at some of the things that TPR has said it expects of trustees in more detail.

Our expectations of trustees &- business continuity

You need to be alive to risks that would have significant consequences for your scheme and members. Assess whether your business continuity plan (BCP) is still adequate and contact your administrator or service provider to find out what contingency is in place to mitigate their impact of increases in work volumes or unavailable staff.

Prioritise

You should make it clear which activities should be prioritised in the event of under-resourcing, such as pensioner payments, retirement processing and bereavement payments. Confirm this priority order with your administrators or providers and work with them if there are any issues with these activities.

Corporate distress

If you are the trustee of a DB scheme and your sponsoring employer is at risk, or has asked you to reduce or suspend your scheme's deficit repair contributions (DRCs), TPR encourages you to read their material on corporate distress.

Helping protect your members from scams

Savers might increasingly look to transfer their pension, prompted by the instability of their employer or the financial markets.

This means they could be increasingly targeted by scammers attempting to lure them to 'safe havens'. If a saver asks about transferring their pension, urge them to exercise extreme caution and visit ScamSmart which has specific guidance relating to COVID-19.

Trustees should also signpost their members to the Money and Pensions Service - particularly those approaching retirement and whose pension may have been affected by the current economic conditions.

Administrators

COVID-19 is placing huge additional pressures on the administration of pension schemes. Administrators should prioritise payments of benefits, retirement processing and bereavement services, as well as any administrative functions required to support these. After this you should focus on the processes you need to ensure accurate benefits (e.g. investment of contributions).

TPR understands that many non-critical trustee and member services may be affected, for example you may have to delay responding to member queries or producing annual benefit statements. Trustees and administrators should report to TPR immediately if they believe they will be unable to pay members' benefits. TPR wants trustees and managers to report everything else to TPR as normal and we will take a pragmatic approach in our response.

Employers

TPR appreciate that this is a challenging time for everyone and we recognise the strain this is putting on employers. TPR will take a proportionate and risk-based approach towards enforcement decisions, in light of these challenging times, with the aim of helping to get employers back on track and supporting both employers and savers.

Timings of our regulatory communications, publications and events

TPR are temporarily suspending our regulatory initiatives. TPR will be maintaining one-to-one and relationship supervision and rapid response work to enable two-way contact with trustees, managers and sponsoring employers during this time.

TPR are postponing the publication of their Corporate Plan, our long-term strategy, and our consultation on bringing together our codes of practice to form one single code. Our DB funding consultation is open, and we will review timings in the coming weeks. TPR have also cancelled or moved all scheduled events.

So what else do trustees need to think about? What are some practical steps that can help the trustees carry on business as near to normal in highly unusual circumstances?

Check that trustee meetings can be held remotely

Trustee meetings do not necessarily have to be held in person. There do, however, have to be provisions in place in relevant governing documents that allow meetings to be held by electronically or by telephone/video conference. The relevant powers will usually be set out in:

• the trust company's articles of association (for corporate trustees); or
• the scheme's trust deed and rules (for individual trustees).

If this isn't clear, ask your scheme lawyer for more information on this.

Ensure that the trustees can continue to take decisions

A sharp rise in the level of cases raises the prospect of 'key person' risk.

In particular, trustees may need to consider whether:

• they should designate a reserve chair for main trustee meetings and sub-committees;
• meetings will be quorate in the event of widespread illness and how this will be handled;
• powers are suitably and clearly delegated to allow the trustees to function without being too reliant on individual trustees;
• authorised signature lists are up to date and suitably flexible to permit authorisation of instructions;

In addition, trustees might want to pre-agree actions such as the formation of an emergency response committee and having stand-by trustee-candidates ready to fill vacancies (whether on a temporary or permanent basis).

You can find out more on all of this by reading our COVID-19 and pensions Insight.

We've also prepared a trustee checklist which covers all of the main action points for trustees to consider and record actions taken against them - ask your Gowling WLG client service team for more on this or contact me.

And finally, the pensions aspects of dealing with coronavirus is just one of a huge range of material that the wider firm has been putting together. We've pulled the best of this together into a single guide covering lots of areas that are causing real concern to employers and organisations such as contractual rights, force majeure, employment issues and furloughs, dispute resolution and insurance.

Download your copy on our website.

And that is all from us for this update. My contact details are on screen – please feel free to get in touch if you have any questions or want more information.

I'm Ian Chapman-Curry, and this has been a pensions webinar brought to you by the pensions team at Gowling WLG. Until the next time, stay safe and stay in touch.