A fifth of sponsors may suspend DB contributions

According to a research from Isio, 12 percent of sponsor companies have already requested to suspend their deficit reduction contributions, while 7 percent are currently exploring the option

According to a new study, £200 million per month of deficit contributions of UK pensions funds could go unpaid.

Research from pensions expert, Isio, found 12 percent of sponsor companies have already requested to suspend their deficit reduction contributions, while 7 percent are currently exploring the option.

Political and economic volatility was having a massive impact on the country’s pension funds before 2020. The deficits of the country’s largest pension schemes were high at the beginning of this year, while liability values seemed to be set to take a beating in case of a Brexit-induced economic slowdown. These pressures considerably increased by the coronavirus outbreak in Q1.

The economic slump caused by the coronavirus outbreak may have one of the biggest impacts on the pensions sector, which may make it further difficult for fund members to make deficit reduction contributions (DRCs).

A poll by Isio, based on a survey of more than 380 trustee and corporate clients, around one out of five pensions trustees have either suspended deficit reduction contributions since the beginning of the coronavirus crisis or may do so shortly. In 12 percent of cases, the sponsor company had already requested DRC suspensions, whereas another 7 percent of sponsors were exploring DRC suspensions, but are yet to approach the trustees – leading to a total 19 percent of sponsors suspending DRCs.

Out of the suspensions that are already in place, 6 percent had been accepted by trustees, while a further 6 percent are under consideration. In more than 95 percent of those considered, the trustees had accepted the sponsor’s request, which means, in case the 7 percent exploring this option take it, the majority of them could be approved.

Mike Smedley, Partner at Isio, commented, “The findings of our client survey clearly show that trustees are heeding the advice of TPR and accepting a reduction or suspension of DRCs where required. Trustees are right to take decisive action and be flexible during the current market environment, but they need to remain diligent and monitor the situation closely. With two-thirds of suspensions requests only seeking a short-term relief from DRCs, we expect further conversations to occur in the coming months and weeks as trustees seek to implement creative longer-term solutions.”

Isio, formerly KPMG’s UK pensions practice, was launched in March 2020. Its aim was to deliver clear, simple pensions and investment advice in a personal manner. It is backed by technical expertise and proprietary technology, and combines actuarial expertise, third party administration, investment consulting, and defined contribution specialism to deliver better outcomes for pension scheme sponsors, trustees and members.