Hundreds of defined benefit schemes are likely to put off tackling deficits to the tune of £500m due to Covid-19.
New analysis by pensions consultants Lane Clark and Peacock has revealed that more than 500 companies could use new powers to defer pension contributions.
These new powers come from the Pensions Regulator, which has allowed pension fund trustees to agree with companies to delay making contributions where the firm is under strain.
The emergency measure is subject to certain safeguards with firms expected to cut back on dividends and bonuses.
Results of a survey of more than 100 industry experts at a recent LCP event on DB pension funding have been combined with analysis of data on more than 200 schemes where LCP acts as an adviser.
It estimates at least 10 per cent of sponsoring employers are likely to delay making contributions by at least three months.
As at 31 March 2019, the Pension Protection Fund indicated that there were 5,436 DB pension schemes in operation in the private sector, suggesting that more than 500 could see contributions put back.
Data prepared by the Office for National Statistics shows that, in a typical quarter, employers pay around £5.5bn into DB pension schemes, with the large majority of this being to clear deficits.
LCP says if 10 per cent of schemes see a delay, this would suggest around £500m will be held back.
LCP partner Jill Ampleford says: “Some firms that are fundamentally sound are nonetheless facing huge short-term cashflow 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 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.”
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