Hundreds of businesses are taking advantage of relaxed pension payment rules due to the coronavirus pandemic
Official watchdogs are letting businesses take a break from pension top-ups even if employees carry on contributing during the outbreak.
Regulators have agreed to suspend employer contributions temporarily to help businesses with their cash flow while coronavirus has a grip of the economy.
The emergency measures are a three-month stopgap.
Pension consultants Lane Clark & Peacock (LCP) reckon at least 500 businesses will take advantage of the break.
Retirement cash worries
Troubled department store Debenhams has already withheld one month’s payment, while Sir Philip Green’s Arcadia – which owns fashion brands Burton, Dorothy Perkins, Evans, Miss Selfridge, Topman, Topshop, Wallis and Outfit – is reportedly ready to shelter under the rules.
While workers contribute 5% of their wages, employers top-up the amount by at least 3% – which is the amount The Pension Regulator (TPR) is allowing them to take a break from paying.
The coronavirus crisis is worse for retirement savers with defined contribution pensions.
These are scheme with retirement income linked to fund value rather than final salary, while few have cost-of-living hikes every year.
Many savers are worried that they might not have enough to live off in retirement already and were due to make extra payments to increase their funds, but the payment break is likely to make their finances worse.
Vital support for businesses
Jill Ampleford, a partner at LCP, said: “The ability to agree with trustees a delay in making pension contributions will help them 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 in the pension scheme, particularly as this could have materially increased due to changes in financial markets”.
Meanwhile TPR confirmed the government will pay pension contributions for furloughed staff under the Coronavirus Job Retention Scheme.
Spokesman David Fairs 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.
“If a business should sadly fail, members of defined benefit schemes can be reassured that the Pension Protection Fund is ready to support them.”
