Posted on: 1st May 2020
According to a recent survey by the Financial Times, 10 percent of employers with defined benefit schemes may look to suspend up to £1 billion incontributions. This comes as businesses strike deals with scheme trustees to keep afloat during the COVID-19 pandemic.
Due to the lockdown, many non-essential businesses and households across the UK have left companies with a loss of revenue, leading to interventions by the government and regulators.
TheRegulator recently introduced emergency measures to allow employers to suspend or reduce schedules payments to repair funding holes in DB schemes they back. In return, dividend payments must be suspended for the duration of the payment holiday.
consultants who responded to the survey estimated that one in 10 employers with DB schemes could take advantage of the regulatory easement.
“If roughly 10 percent of employers look to suspend DRCs [Deficit Repair Contributions], which is the level indicated so far, then we could be looking at £1bn or more suspended over the year,” said Charles Cowling, chief actuary with Mercer. “If the Covid-19 lockdown continues, then requests for suspensions are likely to increase.”
Nearly 90 percent of those who responded to a recent COVID-19 survey by Mercer pointed out that they would aim to suspend DRCs, as opposed to reducing them, with most requests for periods between 3 months to a year.
Barnett Waddingham, an actuarial group, performed a survey of its clients which suggested that 10 per cent of employers had either paused or cut their DB contributions in response to the pandemic.
“Unsurprisingly, it appears that the lockdown measures are impacting employers in the manufacturing and retail sectors more so than others,” said Simon Taylor, partner with Barnett Waddingham.
“In particular, around 40 percent of those sponsors pausing or cutting DB contributions manufacture goods, while a further 30 per cent are from the retail sector. The forecast for the suspension of £1bn in contributions over the year contrasts with an estimated £2tn in liabilities in DB schemes in the UK.”
To see the full article by the Financial Times, click here.
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