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Author: Maria Quinlan

What does COVID-19 mean for our defined contribution retirement savings?

What are the key considerations for Companies and/or Trustees and what do they need to think about from a defined contribution perspective to help navigate through these challenging times?

The Covid-19 pandemic has disrupted daily life as we know it, shaken financial markets and instilled fear and uncertainty in many.  As a country we continue the fight to try and prevent the spread of Covid-19 which has meant that many businesses are having to respond and adapt to the new environment in which they now find themselves.  This uncertainty has undoubtedly created challenges and is being felt by both employees and employers and has brought cost concerns to the forefront of all our minds, of which pension contributions are a significant one. So, what are the key considerations for Employers and/or Trustees to help navigate through these challenging times?

We summarise 5 key themes here:


The extreme volatility caused by economic uncertainty will translate to volatility within defined contribution (DC) schemes and for members, and this volatility in turn leads to fear and worry. Whilst it’s unsettling to see steep falls in fund values, there are several protections that may have been put in place for members to manage risk exposure; mainly lifestyle strategies and diversification. During a time of such uncertainty we need to reassure members, help them to avoid making rash decisions (including ill-timed fund switches, reducing pension contributions and opting out of the pension plan) and remind them of the longer-term benefits and considerations of their pension arrangement.

Members approaching retirement need to consider the personal impact and how this may influence their decisions. This specific cohort are likely to have more immediate concerns and worries; therefore, Companies and Trustees need to recognise this and give consideration to the type of support that can be provided to these members at such a critical time. 

Markets have suffered several sharp downturns in the past, but after periods of uncertainty, they have recovered. This is the likely outcome for Coronavirus, but we don’t yet know for how long this uncertainty could last or how long a recovery could take. A balanced and timely communication campaign plays an important part in reassuring members and addressing these concerns.


In recent weeks, financial markets have seen a near-unprecedented fall in value, which has led to a high degree of uncertainty for many. For Employers and Trustees, it is important to consider how this uncertainty has impacted their investment strategies both in the short term and longer term. What can Employers and Trustees do?

  • Check how effective lifestyle strategies have been in managing risk exposures for members based on their proximity to retirement.
  • Check how pre-retirement funds have managed volatility relative to annuity prices.
  • Review how Diversified Growth Funds (DGFs) have performed in these stressed market conditions, which in turn will help Employers and Trustees understand the role they play in an overall investment strategy.

Another specific impact has been the material difficulty in placing a fair valuation on properties currently, leading to many property funds placing a suspension on trading. This has created many operational and communication considerations.

As a result of this increased volatility in the market there will be concerns for those with an imminent bulk asset transition and careful management will be needed around how these transactions are planned and whether they should be deferred until market volatility reduces.

Plan design

Whilst short term plan design changes may be challenging due to the need to consult with employees around proposed changes, there is an opportunity in the longer term for companies to explore their plan design to consider how they can reduce future operational costs. In some cases, this may require contribution structures to be reviewed.

There may be an opportunity for sponsors of trust-based plans to reduce costs without necessarily reducing the quality of pension provision. For example, removing deferred liabilities by transferring these out to another pension vehicle or by outsourcing responsibilities. Longer term, plan sponsors may also consider outsourcing provision to an appropriate arrangement. Whilst there will be a cost of change, the payback period can be short, and employees could benefit from being part of a larger arrangement with the scale to invest more in continuous improvement.

Cash flow

Many businesses are facing worsening cash flow conditions and will be focussed on how to improve this both in the short term and long term. DC pension spend is likely to come under the spotlight and considerations may include:

  • How pension contributions are to be covered for employees who may have had a reduction in working hours, been temporarily laid off or have had a reduction in salary. 
  • The fact that pension contributions may not be deducted from payments made under the Government’s Temporary Covid-19 Wage Subsidy Scheme.
  • Reviewing employer contributions – it is important Employers continue to remit contributions therefore determining the correct adjustments to be made to contributions, which involves reviewing the pension scheme rules. Failure to remit correct contributions or remit and invest pension contributions in accordance with statutory deadlines can result in on the spot fines for both Employers and Trustees.
  • Exploring opportunities to utilise any surplus cash in trustee bank accounts to pay towards pension contributions and engaging with Trustees to obtain their support. 
  • For those employers who pick up an element of running cost on a member’s behalf, they may consider whether this can continue.

The Pensions Authority has also indicated it has received several queries in relation to the reduction or suspension of contributions and has stated it is examining this matter in detail and will issue an announcement in April. Either way it will be imperative for there to be an open dialogue between Trustees and Employers to manage these considerations.

Financial wellbeing

With a need for businesses and people to adapt to changing work environments, there are many aspects of an employee’s wellbeing that need to be considered. As a rule, listening to employees during distressing and unpredictable times is an important signal that you care. It helps demonstrate that you want to understand how to help reduce anxiety and build trust.  As well as the social, physical and emotional wellbeing of your employees, financial wellbeing is likely to have been impacted where employees have had hours reduced or have been placed on the Government’s Temporary Covid-19 Wage Subsidy Scheme. Whilst DC plans do not offer any form of short-term loan facility, non-pension financial supports are available. There is growing evidence to suggest that where these are in place, they have a positive impact on retention and productivity, both of which will be important as the economy seeks to recover from the effects of Covid-19.