Hundreds of companies expected to delay pension contributions

MORE than 500 employers are expected not to pay into their company pension funds as a result of the coronavirus pandemic, as MPS raised concerns that firms will use the crisis as an “excuse” to lessen employees’ pension provision.

Arcadia, owned by Philip Green, and Debenhams have already indicated that they are planning to hold off planned payments into their respective pension schemes.

More than 500 companies now are likely to delay tackling the deficit in their pension schemes, analysis by Lane Clark & Peacock (LCP), a pensions specialist, has shown.

Steve Webb, the former pensions minister and now partner at LCP, told The Daily Telegraph: “If the economy recovers and businesses’ cash flow improves again, then it should be possible in most cases to get things back on track, but clearly if the economic damage is long term, this is going to weaken the security of members’ pensions.”

The Office for Budget Responsibility, the independent forecaster, said last week that a three-month lockdown could cause GDP to shrink by 35 per cent this spring.

Meanwhile, the Resolution Foundation, an economic think tank, said a recovery from a longer six-month lockdown could take up to five years.

Earlier this month Debenhams failed to make an agreed top-up payment to its pension scheme, sparking warnings that 10,000 members could be left out of pocket in a potential administration of the department store.

Arcadia, which was meant to pay £25 million a year into its pension scheme over the next three years, signalled a similar move.

Rachel Reeves, the shadow Cabinet office minister, has warned that companies “will need to answer for their decisions during this pandemic”, adding that the situation should not be used as an “excuse” to lessen employees’ pension provision. Jill Ampleford, partner at LCP, said: “Some firms that are fundamentally sound are none the less facing huge short-term cash flow pressures during the present crisis. The ability to agree with trustees a delay in making pension contributions will help them to weather the present storm.

“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”.

Results of a survey of more than 100 industry experts estimated that at least 10 per cent of employers are likely to delay making contributions, said LCP.

Data prepared by the Office for National Statistics shows that, in a typical quarter, employers pay around £5.5 billion into pension schemes, with the large majority being to clear deficits.

If 10 per cent of schemes experience a delay, this would suggest around half a billion pounds would be held back.