Pensions Trustees Told To Watch For Employers' Insolvency

By Lucia Osborne-Crowley
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Law360, London (November 12, 2020, 12:07 PM GMT) -- The pensions watchdog warned trustees on Thursday to look out for signs of financial trouble among employers amid the challenges of COVID-19 and Brexit, telling them to act quickly if they suspect their members' contributions could be in danger.

The Pensions Regulator has issued guidance instructing trustees to spot the early warning signs that employers are sliding into financial distress. The watchdog warned that the pandemic continues to have a damaging impact on the British economy.

"Trustees are the first line of defense for savers," the director of supervision at the regulator, Mike Birch, said. "The faster they act, the more options and greater time they'll have to protect members' retirements."

The watchdog also warned trustees that they should watch for signs of employers facing financial trouble because of Brexit as well as problems that might arise from mergers and acquisitions during the latest economic downturn.

"In the current climate, some employers are struggling." Birch said. "The current environment is also leading to an increased level of corporate transactions, some of which are completed in response to distress."

PricewaterhouseCoopers reinforced the watchdog's message.

"TPR is increasing the pressure on pension scheme trustees to deal with sponsors in distress and is actively encouraging them to act now to maximize the value of the options available for protecting schemes," Stephen Soper, senior pensions advisor and pensions partner at the consultancy giant, said. "Our experience and analysis shows that companies most impacted by COVID-19 and notably in the consumer discretionary spend sector are struggling to support their pension schemes."

Pensions consultancy Hymans Robertson said the warning is "particularly timely given the current backdrop."

"Trustees might not think that they'll ever face this situation, but the risk of sponsor insolvency is very real," Laura McLaren, a partner at Hymans Robertson, said. "As the fallout from the pandemic continues, and Brexit looms on the horizon, there are almost daily announcements of companies cutting jobs."

McLaren added that the economic climate could get worse before it gets better.

Another investment consultancy sounded the alarm on Tuesday over the country's rising pensions deficit, saying the total shortfall for defined benefits grew to £168 billion ($222 billion) in October as Britain headed into lockdown again. The number of defined benefit pension schemes that are facing a deficit has risen by 10% over the past 12 months, consultancy AJ Bell said.

--Editing by Ed Harris.

For a reprint of this article, please contact reprints@law360.com.

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