Understanding the Employer Covenant

Trustees of defined benefit pension schemes need to understand the ability and willingness of the sponsoring employer to fund the pension scheme. Only then can they:

• determine an appropriate investment strategy.
• determine an appropriate funding strategy.

By understanding and monitoring the employer covenant, trustees are better able to make decisions on:

• what margins for prudence need to be made in their funding assumptions.
• whether to take a long-term view in their investment policy.
• what recovery period is appropriate for a deficit to be repaid.

In today’s uncertain economic client trustees need an independent review of an employer’s covenant to comply with guidance issued by the Pensions Regulator and to limit personal risk. The depth and extent of a review can vary, depending on the circumstances. The approaches can vary from:

• obtaining regular presentations from a senior representative of the employer at trustee meetings.
• a desk-top review based on publicly available information.
• a more detail investigation based on discussions with the employer and analysis of business forecasts.

Employer covenant reviews can be a stressful and time consuming experience for the employer. With appropriate planning and advice, an employer should not experience any undue inconvenience or unexpected demands at the end of the exercise.

We provide a flexible and timely approach to assessing the employer’s support for a scheme. We understand that employers experience the ups and downs of commercial life and trustees need to adopt an appropriate response. We offer a multi-tiered approach so that trustees can meet their duties in relation to their assessment of the employer’s covenant. Our approach caters for all schemes, large and small, and provides clear recommendations for the trustees to consider.

Transaction support

We recognise and understand that, at times, a scheme can be a challenge as well as a benefit. Employers can benefit enormously from a well structured, appropriately funded scheme. However, that same scheme can produce challenges for the employer and Trustees in the areas of risk, funding and transaction structuring. These areas need to be planned and managed as an integral part of the business.

Typically, we are instructed by employers and Trustees in the early stages of a proposed transaction. As experienced professional advisers we are able to review the circumstances and suggest ways in which the transaction can be progressed to a successful conclusion. We make full use of the services and support offered by the Pensions Regulator to offer structured solutions and as licensed insolvency practitioners we are able to fully demonstrate and explain the potential problems if transactions do not proceed.

Pensions Consultancy

We also provide advice on how to minimise the cost of the PPF levy, the restructuring of organisations and strategic planning for corporate entities as well as pension arrangements.

We provide turnaround advice and active assistance if we are approached at an early enough stage. Regrettably, most approaches and requests for assistance are left until turnaround is a dream in the past and a rescue is required…….. We are committed to finding the best way forward for the business or the individual using the benefits of turnaround whenever possible. Inevitably, rescue or turnaround…….
Trustees of defined benefit pension schemes need to understand the ability and willingness of the sponsoring employer to fund the pension scheme.....