500 firms to stop pension top-ups over coronavirus
Hundreds of companies are expected to abandon attempts to fill shortfalls in their pension schemes during the coronavirus crisis.
The finding from pension experts suggests “top-up” contributions will be cut by at least £500m.
Debenhams has already missed a payment and the Arcadia group, which owns Topshop, plans to stop them temporarily.
Regulators are permitting the suspensions to help businesses survive.
The pension schemes affected are the most valuable for staff because they guarantee a retirement income based on your salary while working.
But there has to be a fund in place to back the promise.
In many cases, these funds have huge shortfalls and the current crisis has made the situation worse.
Employers are supposed to be making emergency contributions, in addition to their normal ones, to try to close the gap.
Getting ‘back on track’
A leading pension consultancy firm, LCP, has estimated that more than 500 companies will take advantage of an emergency measure under which the trustees of pension schemes can allow them to put off paying for three months.
The idea is that they will get short term breathing space and catch up with the contributions later.
Jill Ampleford, a partner at LCP said: “The ability to agree with trustees a delay in making pension contributions will help firms to weather the present storm and continue their support to the scheme in the long-term.
“But it will be vital to get things back on track once the crisis is over, so that a realistic plan is put in place to deal with the shortfall.”
The Pensions Regulator told BBC News it was vital to support businesses through the crisis, and where one did fail, staff would be supported by the UK’s Pension Protection Fund.
David Fairs, executive director of policy at the regulator, said: “We are clear that the best support for a pension scheme is a strong employer.
“It is vital that we support businesses and trustees through this crisis while balancing the risks to members,” he added.
It is also being pointed out in the industry that if the loss in contributions is limited to £500m, it will be small in comparison to the overall cost of paying pensions.
But LCP warns that if the economic damage from the virus is long-term, the security of retirement incomes will be weakened.
The Pension Protection Fund does provide a safety net but if a scheme has to be rescued, pensions for many members, especially the younger ones, would be reduced.