UK Pensions – Pensions Regulator sets out regulatory approach on deferring contributions and transfer values

For trustees and sponsoring employers of UK pension schemes grappling with the impact of Covid-19, the Pensions Regulator has published new guidance on scheme funding and investment. This confirms that the Regulator will be relaxing its regulatory approach for the next three months in several key areas, including in relation to employers deferring contributions and cash equivalent transfer values (CETVs). We summarise the main points below.

Scheme funding

Some employers will be facing significant challenges as a result of Covid-19 and may be looking for ways to manage the situation, for example, through reducing or suspending deficit repair contributions. The Regulator says that trustees should be open to such requests and should consider these in line with the following key principles:

  • the employer’s need for the reduction or suspension should be established;
  • trustees should ensure that banks and other funders are being supportive and that no dividends or other distributions are being made from the employer;
  • any suspension should have an end date, but also triggers to restart if trading returns to normal;
  • trustees should ensure they take legal and actuarial advice;
  • trustees should generally offer only short-term concessions of no more than three months if they are not able to fully assess the employer’s position (although extensions beyond this may be appropriate in some circumstances); and
  • ideally, suspended or reduced contributions should be repaid within the current recovery plan timeframe.

The guidance confirms that the Regulator doesn’t intend to use its regulatory powers in respect of either late reporting or failure to make contributions over the next three months.

The guidance emphasises that employers should make all reasonable endeavours to provide trustees with the information they need to assess the impact on the employer covenant and the affordability of deficit repair contributions. The Regulator strongly recommends that employers document their position regarding the treatment of their schemes, particularly as this may assist in any future engagement with the Regulator. This is a strong hint that employers may be called upon at a later date to justify any actions they take during the Covid-19 crisis.

Schemes completing their valuations now

The guidance says that trustees close to completing their valuations don’t need to revisit their valuation assumptions, but they should take into account post valuation experience when agreeing recovery plans, with a focus on whether provisionally agreed deficit repair contributions are still affordable for the employer. The guidance confirms that trustees can delay their recovery plan submission by up to three months without risk of the Regulator taking any action.

Transfer values

The Regulator says that trustees may decide to suspend CETV quotations and payments to give themselves time to review CETV terms and assess the administrative impact of any increase in demand for CETV quotes. The guidance confirms that the Regulator won’t take any action in the next three months against trustees who suspend CETV activity and the Pensions Ombudsman will take this guidance into account when determining whether trustees took reasonable action.


The guidance says that trustees of both defined benefit (DB) and defined contribution (DC) schemes should:

  • review and manage specific risks that may now exist within their portfolios and (in the case of DB schemes) within their sponsoring employer’s business;
  • review any previously agreed investment decisions to be implemented in the future;
  • review their investment governance structures; and
  • assess whether any changes to their governance framework should be made.

The guidance adds that DB schemes should review their cashflow requirements.

Trustees of DC schemes, meanwhile, should consider how individual members might react in the current environment to falls in the value of their pension savings or the reduction or loss of earnings. The guidance highlights that members could make inappropriate decisions, crystallise losses or be exploited by scams. Trustees should therefore consider reviewing their member communications.

For more information, please speak to your usual Linklaters contact.