Covenant advisory services

The employer sponsoring a defined benefit pension scheme underwrites all the risk the scheme is exposed to. Therefore the employer covenant is a critical factor for pension scheme trustees to consider when deciding about the scheme’s funding and investment strategy. We have a dedicated team of experts who can assist sponsoring employers with preparing an objective review of the covenant for the trustees, assessing the impact of corporate activities on the covenant, and determining whether it is appropriate to offer any mitigation to the trustees. This team is part of the Punter Southall Transaction Services group which allows our covenant experts to benefit from and utilise our vast experience in the corporate transaction market. Our covenant advisory services for employers are designed to help companies achieve acceptable outcomes in covenant-related discussions with the trustees that satisfy the relevant regulatory requirements.

For further detail on the services we provide, including some of our recent case studies and information on our team providing this advice, please download our brochure.



We assist employers by:
  • leading pro-actively the covenant discussion and presenting on the covenant to trustees to pre-empt any issues and inappropriate anchoring of views
  • following a more re-active approach (if preferred) by discussing with the trustees their initial view on the covenant and addressing specific queries from them
  • ensuring that the strength of the employer covenant is properly reflected in the actuarial assumption and the level of prudence applied is not excessive
  • discussing with trustees how much the company can reasonably afford to contribute to the scheme
  • exploring the use of contingent assets and conditional funding arrangements as part of the recovery plan
Covenant reviews are triggered by either employer or scheme related activities; the actuarial valuation being the most common example. The events when covenant is a relevant consideration include the following:
  • Corporate events: merger and acquisition, divestment, refinancing and restructuring, dividend payment and share buy-back, deterioration of trading performance, change in credit rating
  • Scheme events: actuarial valuation, investment strategy review, apportionment arrangements, withdrawal arrangement, transfer value calculations, scheme merger or scheme closure


Our covenant advisory services help sponsoring employers:
  • understand the scheme trustees’ obligations and perspectives so they present the strength of the employer covenant correctly
  • understand the scheme trustees’ requirements so they release the right information in a timely and helpful way
  • encourage the scheme trustees to limit the importance given to short-term trends which can cause an overreaction to current events
  • answer questions posed by scheme trustees and provide explanations appropriate to the covenant assessment
  • highlight strengths within financial policy, capital structure and cash flows that may not be obvious to the scheme trustees or their advisors
  • show the strengths that come from capital investment in the business and the associated benefits to their future sponsor covenant
  • negotiate with scheme trustees or their advisors on covenant related issues, such as the pension scheme’s recovery plan
  • apply for Clearance from the Pensions Regulator and present the company’s case


The end goal is to agree with the scheme trustees a more accurate level of prudence in the valuation that secures affordable contributions without stifling future growth plans.

 Insights & views

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    10 August 2016

    Finally, after over four years in the making, the new EU General Data Protection Regulation (GDPR) has been published. All member states will have two years to become fully compliant with the GDPR, which will be directly effective from 25 May 2018 without the need for implementing legislation in individual member states.

    Read full briefing note here

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    Investment Quarterly Update - July 2016
    28 July 2016

    ​​In the initial paragraph of our Q1 16 market commentary we started by saying the key themes over the quarter were uncertainty and volatility caused by the EU Referendum, terrorist attacks, the EU Migrant crisis, Japan and negative interest rates and concerns about Chinese growth. 3 months later and not a lot has changed – other than the fact we actually voted to leave the EU!

    Read full investment update here

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    Corporate Bulletin: Quarter 4 2014 update
    9 January 2015

    ​Welcome to the 2014 year-end edition of our quarterly bulletin aimed at defined benefit (DB) sponsors. We provide an overview of market conditions and the range of accounting assumptions sponsors may wish to use for their annual disclosures at 31 December 2014 alongside market news regarding pension buy-outs and de-risking, and an update on PPF issues.

    View full Corporate Bulletin here

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    Pensions Bulletin September 2014
    4 September 2014
    69 AD is known to ancient historians as ‘The Year of Four Emperors’. It was a year in which four men in turn (Galba, Otho, Vitellius and Vespasian) tried their luck at the imperial throne following the death of Nero. For pensions professionals, 2014 will be remembered as the ‘Year of Four Bills’.

    Read more
    Pension Schemes Bill redefines pensions (again)
    14 July 2014

    The Chancellor’s Budget announcement of greater flexibility over retirement benefits has led to a major reinterpretation of what the word ‘pension’ means in a defined contribution context. Meanwhile, the Department for Work and Pensions
    (DWP) has been working on its own redefinition of pensions in a wider context, in the shape of the Pension Schemes Bill, which was laid before Parliament on 26 June 2014.


    View the briefing note

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    Visit the Industry Insights page for news and views on the latest industry developments
    Speak to us

    Speak direct to our specialists in this area
    Lorant Porkolab
    Head of Covenant Advisory Services
    Or call us on
    020 3327 5000