Yahoo Finance Coronavirus: 500 firms to axe pension top-ups
Pension experts have estimated that over 500 companies will axe “top-up” contributions to their pension schemes during the coronavirus pandemic.
The contributions will be slashed by at least £500m ($623m), according to LCP, a leading pension consultancy firm.
The pension schemes affected are the most valuable for employees because they guarantee a retirement income based on their salary while working.
Many companies’ pension funds have huge shortfalls, meaning the plans do not have enough money on hand to cover current and future obligations, and the financial impact of the coronavirus on business has worsened the situation in many cases.
Employers are supposed to be making emergency contributions, on top of their regular payments, to try to close the gap, but many companies are missing payments.
Regulators are allowing the payment suspensions to help businesses survive by giving them short term respite so they can catch up with the contributions later.
Debenhams has already missed a payment and retail tycoon Phillip Green’s Arcadia group, which owns high street clothing store Topshop, plans to stop them temporarily.
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Over 500 companies are likely to take advantage of an emergency measure allowing the trustees of pension schemes to delay payments for three months, according to LCP.
Jill Ampleford, a partner at LCP told the BBC: “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 companies through the coronavirus pandemic, and if businesses should fold, staff would be supported by the UK's Pension Protection Fund.
However, if a scheme has to be rescued, pensions for many members, particularly younger workers, would be reduced.
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”.
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Industry experts say 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 has warned that if the economic damage from the coronavirus continues in the long-term, the security of retirement incomes will be weakened.
