COVID-19: Pressure points: Key pensions-related guidance (UK)
Blog ADR Notes

Pension scheme reports and financial statements, and related matters in the context of the COVID-19 pandemic

• Key issues include:
  • events after the end of the reporting period
  • audit issues, and

Annual Funding Statement 2020

• Annual Funding Statement considers:
  • scheme specific considerations including post valuation experience, bringing forward a valuation date, calculating technical provisions, recovery plans, affordability, shareholder distributions and intra group transfers
  • what is expected of trustees including long term funding targets, covenant assessments, covenant leakage and managing risks; and

• Additional requirement for trustees to issue a template letter to all members who request a CETV quote from a DB scheme, for the foreseeable future.
• Guidance for trustees in relation to service disruption, stopping contributions and ceasing membership, pension scams and DC investments and market volatility.

• Provides technical guidance around salary sacrifice arrangements and for schemes whose definition of pensionable pay is different from qualifying earnings, in relation to the Coronavirus Job Retention Scheme.

• Provides guidance on reclaiming pension contributions under the Coronavirus Job Retention Scheme (CJRS).
• Confirms how automatic enrolment and re-enrolment operate during furlough and the need to maintain pension contributions.
• Sets out the terms of an easement for employers that do not consult before reducing pension contributions in connection with the introduction of a furlough scheme.
• Provides further guidance on the CJRS and what factors employers should consider if they plan to reduce their contributions to the statutory minimum.
• On 6 May, the guidance was updated to include a new section explaining the issues for employers who have furloughed staff.

• Provides an update for service providers to say the Regulator will be extending the time for notifying late payments from 90 days to 150 days.

• Sets out how the Regulator will respond to breaches of administrative and governance requirements by schemes at this time.
• Provides a non-exhaustive list of specific areas that are not covered by the two guiding principles, and outlines the Regulator’s approach in respect of these.

• Trustees should work with their scheme’s administrator to help deliver core functions which may include agreeing changes in operating procedures, holding higher than normal amounts in bank accounts and reducing the burden on administrators by limited any non-critical demands and queries.
• Trustees of public service schemes should also work with their administrators to deliver critical processes, including paying members’ benefits, retirement processing, bereavement services and any processes needed to ensure benefits are accurate.

• The guidance summarises key actions administrators should take to:
  • maintain evidenced accuracy of benefit calculations.

• Includes lists of basic enables and high level enables for administrators to meet pension scheme priorities.

• Summarises key actions trustees of DC schemes should take in respect of their investment funds, including:
  • considering how members may react in the current climate and issuing appropriate member communications
  • reviewing agreed future investment and risk management decisions;
  • reviewing investment governance structures, and
  • assessing recent performance of their scheme’s funds.
• On 13 May the Regulator updated the guidance to include a new section on member transfers, emphasising that DC transfers are ‘core financial transactions’.
• On 21 May, the Regulator updated its guidance to add a new section on when a temporary closure of funds creates a default arrangement.

• Information on employers’ requests for easements – including requests to suspend or reduce deficit recovery contributions (DRCs), requests to suspend or reduce payments for future service, payments to related entities or shareholders, requests to release security and advice and governance;
• Guidance on DB investments – trustees should review cash flow requirements, specific risks which exist in their portfolios, any agreed investment and risk management decisions, investment governance structures, and assess recent scheme performance, and
• Guidance on suspending transfer values – warns about the heightened risk of members being targeted by scammers, and confirms that trustees can decide to suspend CETV quotations and transfer payments from their scheme for up to three months.

• Annual Funding Statement expected after Easter.
• TPR’s approach will be pragmatic in scenarios where trustees are being asked to agree to a previously unforeseen arrangement (such as DRC reductions or suspensions, or additional debt being secured over employer assets) provided:
  • it can be justified
  • a plan is made for deferred scheme payments to be caught up

• In this statement the Ombudsman confirms that:
  • any post or emails received by the Ombudsman will not be dealt with and correspondence will need to be re-submitted (by post or email) once the Ombudsman is in a position to restore full service; and
  • the Ombudsman’s staff will continue to work from home on existing cases, so complaints or enquiries that have already been submitted to the Ombudsman will be progressed as normal.

• Sets out questions related to COVID-19 for trustees to ask their scheme’s sponsoring employer.

• Summarises TPR’s expectations of trustees.
• How to help protect members from scams.
• Links to PASA guidance for administrators;
• Links to TPR’s automatic enrolment guidance for employers, and

• This statement reminds trustees of the need to ensure that they are prepared and have suitable contingency plans in place should their scheme’s sponsor become insolvent.
• Directs trustees to its guidance on ‘Contingency planning for employer insolvency’, which highlights the need for trustees to plan ahead to ensure as smooth a transition as possible for scheme members should the scheme need to enter the PPF.

Coronavirus Job Retention Scheme

• Partial furlough will be possible from 1 July 2020. Employers will be able to claim in respect of previously furloughed employees either for full furlough, or for partial furlough where employees work part of their normal hours. The employer must pay wages and employer NICs and pension contributions for the hours worked, and can make claims under the CJRS in respect of the normal hours not being worked.
• The CJRS grant will continue to cover 80% of wages for unworked hours (subject to the monthly cap of £2,500 or, for partial furlough, a proportionate cap reflecting the hours not worked), plus associated employer NICs and pension contributions.
• For August, employers must pay the employer NICs and pension contributions for the hours not worked; the CJRS grant will continue to cover 80% of wages subject to the cap.
• For September, employers must contribute 10% of the capped wages (plus employer NICs and pension contributions) with the government paying 70% of capped wages for the hours the employee does not work (so the employee continues to receive 80% wages subject to the cap).
• For October, the employer contribution increases to 20% (plus employer NICs and pension contributions) and the government contribution reduces to 60% of capped wages.
• The CJRS will close on 31 October 2020.

• the Coronavirus Job Retention Scheme will remain in place and be available to all sectors through to the end of October
• from August there will be greater flexibility
• in particular, employers currently using the scheme will be able to bring furloughed employees back part-time and employers will also be asked to ‘start sharing the cost’ of the scheme, and
• the support provided by the scheme will continue at the same level (i.e. 80% of a furloughed employees’ wages (subject to the £2,500 per month cap) plus associated NICs and auto-enrolment minimum employer pension contributions).

• Clarification that scheme grants in respect of employer pension contributions in scope must be paid into a pension scheme for the relevant employee as an employer contribution.
• While on furlough, the employee’s wage will be subject to usual income tax and other deductions. However, the updated guidance clarifies that the capped 80% furlough pay must be paid to the employee without deduction for administrative charges, fees or other costs in connection with the employment.
• Clarification that where there is a salary sacrifice scheme, the grant (which will be based on the post-sacrifice salary) must be paid to the employee in money and cannot be used to pay for the provision of any benefits provided through salary sacrifice schemes (including pension contributions). An employer would therefore need to continue to provide these benefits (including the increased pension contribution due to salary-sacrifice) at its own expense unless other arrangements are agreed as part of the furlough agreement. The guidance already noted that salary sacrifice arrangements can be changed in recognition of COVID-19 being a ‘life event’.

• Claims under the scheme will now be possible in respect of employees who were employed and on the employer’s payroll on or before 19 March 2020 (just before details of the scheme were announced), rather than 28 February. The guidance now clarifies that being on payroll for these purposes means that an RTI submission notifying payment in respect of the employee to HMRC must have been made on or before 19 March 2020.

• The Chancellor has made a Treasury Direction under Sections 71 and 76 of the Coronavirus Act 2020.
• It sets out that HMRC are responsible for the payment and management of amounts to be paid under the Coronavirus Job Retention Scheme, as set out in the Schedule to the Direction.

• Clarification that a director will not be treated as doing work (and therefore outside the CJRS) where they are carrying out of duties as a trustee or manager of an occupational pension scheme (save where the employer’s business is the provision of occupational pension scheme independent trustee services).