By David Fairs

The Pensions Regulator is anxious to meet the industry’s expectations, but this latest challenge does not come with a manual. Hope William-Smith speaks to David Fairs.

It’s nearly two years since David Fairs stepped away from more than two decades with KPMG to take the helm at The Pensions Regulator (TPR) as executive director for regulatory policy, analysis and advice….

How bad is the crisis for defined benefit (DB) schemes? Do all trustees need take up the easements we set out in our guidance, in particular in relation to requests to defer deficit repair contributions (DRCs) or payments for future service by their sponsoring employer?

It is obviously too early to say what the medium to long-term impacts of the pandemic will be, but the crisis has already affected many schemes and employers. Some schemes will fare better than others, depending on how well funded they were at the start of the crisis, their investment strategy and level of hedging and the sector in which their employer operates. We therefore don’t expect all employers to need to defer DRCs or payments for future contributions.

But some employers will be constrained, and in these circumstances, trustees should be open to requests for deferrals, provided they undertake due diligence as set out in our guidance. Recognising not all information needed for this due diligence may be available, our guidance provides scope for a short-term deferral of up to three months.

These are difficult decisions to make and trustees and employers, supported by their respective advisers, should approach these discussions openly and in a spirit of collaboration, taking into account the specific circumstances of the scheme and its governing documentation.

Trustees or employers facing difficult negotiations can get in touch with us and we will do what we can to support them. Please contact customersupport@tpr.gov.uk and flag clearly if your query is urgent.

Your guidance said trustees should consider any request to release security very carefully, but some sponsors are saying they may not be able to honour their guarantees. What should trustees do in this situation?

Some schemes benefit from guarantees, ranging from a payment of DRCs guarantee up to a full section 75 guarantee. Giving up a guarantee is unlikely to be in the best interests of members and would mean trustees lose their seat at the table with other creditors.

If the guarantor says it is unable to afford DRCs, then our recent guidance and considerations relating to DRCs is also applicable. Trustees should consider the guarantor’s inability to make payments carefully and take legal and financial advice. We would expect the guarantor to provide sufficient evidence that the guarantee cannot be honoured and that the scheme is being treated equitably compared to other creditors.

Trustees should seek advice to understand what enforcement rights they have and what their options are (for instance, should they waive the breach or enforce payment?). In extreme situations, trustees should be prepared to enforce the guarantee to protect member benefits.

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