The Pensions Regulator releases new guidance for schemes with distressed sponsors

The Pensions Regulator (TPR) released new guidance (on Thursday 12 November) for trustees of all DB pension schemes with a focus on spotting situations where sponsors are in distress leading to potential insolvency. It includes common examples and a high-level checklist for when a sponsor is distressed. 

Many employers are experiencing financial distress due to the ongoing challenging environment and impact on the economy. Trustees, as guardians of pension schemes for savers, are encouraged by TPR to be more vigilant to changing circumstances and potential company insolvencies.

The key points of the guidance for trustees:

  1. Adopt a fully documented Integrated Risk Management approach which will help to flag early on any issues
  2. Understand your covenant and legal obligations to the scheme – trustees should engage regularly with the sponsor to identify and manage key covenant risks early on
  3. Don’t delay in seeking to implement robust scheme protections as the longer the delay the more likely other stakeholders will be able to exert control and extract value
  4. Where sponsors are facing the prospect of insolvency, trustees should refer to the Pension Protection Fund contingency planning guidelines
  5. Be alert to unusual pensions activity masking scam activity.

The full guidance can be viewed here.

Dan Mindel, Managing Director at Lincoln Pensions said:

“While recent news of a possible vaccine may signal the beginning of the end of the COVID-19 pandemic, the damage to many companies is proving to be terminal for them. Against this backdrop, we welcome the pragmatic guidance for trustees from the TPR.

2021 will be a difficult year as many companies, not just those in retail or hospitality, look to repair the damage caused by the global pandemic particularly as the government begins to withdraw the financial support provided and unemployment levels inevitably rise.

The more that trustees can do to plan ahead, and work with their sponsors and other stakeholders (in particular, credit providers), the better the outcomes we are likely to see for all parties and ultimately, scheme members.”

Contingency Planning Part 1: Getting Match Fit
Part 1 focuses on the importance for trustees to get their house in order. In these times, when even previously very strong sponsors are facing pressures and crises which develop very quickly, it is important for trustees to be on their toes.


Contingency Planning Part 2: Law of the Jungle
Part 2 of our webinar series looks at scenario planning into those situations where sponsors are in real-time distress with existing and new stakeholders jostling for position. Part 1 focuses on the importance for trustees to get their house in order.


Read about our Restructuring expertise.

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