Coronavirus: care needed where deferring deficit pension contributions and expenses

Out-Law Analysis | 19 May 2020 | 6:02 pm | 1 min. read

Businesses struggling with short term cash flow as a result of the coronavirus pandemic may be able to defer deficit repair contributions and expenses in relation to their defined benefit (DB) pension schemes.

Such measures may make the difference in terms of whether these businesses survive the short term liquidity crisis which is expected over the next 3-6 months.

That liquidity crisis, and other supply chain risks which compound it, threaten the future of commercially viable and otherwise successful companies.

Emergency guidance from the Pensions Regulator (TPR) may allow employers to defer deficit repair contributions (DRCs) and other expenses, and allow trustees to agree to such a deferral request, for up to three months, provided that certain conditions are met.

However, there are risks to both companies and trustees in pursing this route, in particular the scope for regulatory scrutiny and investigation once the immediate crisis has passed.

In particular, TPR's emergency guidance is clear that any decision to defer or suspend DRCs must be justified and properly documented by employers and trustees.  We can therefore expect TPR to closely scrutinise actions, and the decision making process leading up to those actions, as part of its statutory "watchdog" role.

All legal advice, information and decision-making during the process of implementing a DRC project should, so far as possible, be protected by legal advice privilege, to ensure that due legal process is followed by corporates and trustee boards.

Legal advice privilege protects confidential communications, and evidence of those communications, between a lawyer and client, provided that the communications are for the dominant purpose of seeking and receiving legal advice in a relevant legal context.

Similarly, and as a matter of good practice, documents that will not be covered by legal privilege should not be created unnecessarily.

In the event of a future investigation, legal advice should be sought at an early stage to ensure that you are not handing over privileged documents unnecessarily and that you are not misleading TPR. You may be able to clarify and reduce the scope of any information requests from the regulator, or to request an extension of time to allow for compliance.

Pinsent Masons, the law firm behind Out-Law, is hosting a webinar on managing pensions liabilities and pensions risk in light of Covid-19. We will also address some key aspects of the Coronavirus Job Retention Scheme from a pensions perspective.

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