Defined benefit trustees linked to struggling employers face tough decisions about whether to tip their sponsors into insolvency or increase their burden on the Pension Protection Fund amid the onset of a global recession, in what experts have called a regulatory grey area.

Zombie pension schemes – those where employer affordability is so stretched that the plan has little chance of ever returning to full funding – are nothing new in the UK. A landmark 2015 paper by the Pensions Institute found that 1,000 schemes were stressed as a result of weak sponsors, and might be sleepwalking into greater losses for the PPF.

The situation presents a moral and legal conundrum for trustees – permitting zombie sponsors to limp on as funding levels worsen allows more members to age their way to better levels of PPF protection, satisfying their fiduciary duties to members. But doing so also risks regulatory action from the regulator, which itself cannot wind up schemes unless in members’ best interests.

Experts have suggested that, if more zombie employers emerge, an update to the current framework may be necessary.

Anne-Marie Winton commented that the regulator needs a triage system.

“I suspect they already have it in enforcement of moral hazard cases. It is not going to be possible to investigate every deferral of DB contribution and, quite frankly, some of them they may never know about, because nowhere does it say ‘you have to tell the regulator’.”

She further commented that “trustees would do well to heed pensions minister Guy Opperman’s written answer on April 27, when he said: “With the existing flexibilities and easements, there is no reason why a pension scheme should push an otherwise viable employer into insolvency.”

Read Anne-Marie’s comments in Pensions Expert.