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

    PPF confirms details of the 2018/19 levy
    23 January 2018
    PPF confirms details of the 2018/19 levy
    On 19 December 2017, the Board of the Pension Protection Fund (PPF) published the Determination setting out how the 2018/19 levy will be calculated. This confirms that the majority of proposals in both the main September consultation and the October contingent asset consultation
    will be adopted. 

    Read more
    Corporate Bulletin Quarterly Update - January 2018
    8 January 2018

    In brief 
    - The derivation of the discount rate is not as clear-cut as directors may think. 
    - We examine the future of autoenrolment and the impact it will have on pension savers.
    - The PPF has published levy rules for the next triennium and employers should take actions where they can to minimise their levy payments.
    - The industry is widely accepting that greater clarity is needed regarding the value and costs of investment products and fiduciary management.

    Read more
    Pensions Wire Quarterly Summery - January 2018
    3 January 2018
    In this issue
    A quick figure on US gun crime
    Adding some balance to the Barclays debate
    Car insurers welcome Ogden u-turn 
    New guidance on redress for unsuitable DB pension transfer advice

    Read more
    Briefing Note January 2018
    3 January 2018
    Ten key dates for 2018 : 
    After several years of near-constant change to the pensions landscape, 2017 was a (relatively) quiet year for pensions as both Parliament and Government have been tied up with Brexit negotiations. Whilst we have seen consultations attempting to address some long-standing problems with pensions law (most recently in the context of bulk transfers), the legislative framework remains largely unchanged.

    Read more
    How do you differentiate your Integrated Risk Management?
    7 December 2017

    ​Sorry for the geeky title, but Philip Hammond did say that there would be ‘more maths for everyone’ as part of his Budget speech. So I thought I’d remind you of some of your school maths as we go through this article, to give a framework to our latest thoughts on Integrated Risk Management (IRM).

    Continue reading here

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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