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

    The transfer Window is now Closed
    10 October 2017

    ​In the last issue we recognised the record level of transfer value activity our pension schemes and indeed the pension industry has been experiencing recently. For Premier League Footballers, the transfer window may have closed on 31 August, but for defined benefit pension schemes, the high level of transfer activity continues.

    Continue reading here

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    Supreme Court rules on pensions for same-sex spouses and civil partners
    2 August 2017
    On 12 July 2017, the Supreme Court ruled in the long-running case of Walker vs Innospec that an exemption in UK law that allowed occupational pension schemes to maintain historical discrimination between survivors’ benefits for same-sex and opposite-sex couples was incompatible with EU law. The judgment will have significant implications for those pension schemes that had been relying on this exemption.
    Read more
    TPR DB Investment Guidance
    26 July 2017

    The Pensions Regulator (TPR) published its defined benefit investment guidance at the end of Q1 2017 as part of its strategy to produce practical information and examples of approaches that could be adopted by occupational pension schemes. The guidance follows a lot of the same principles as set out in TPR’s defined contribution investment guidance (published in July 2016), but with specific consideration relevant to defined benefit schemes.

    Read more here

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    To transfer, or not to transfer, that is the question
    10 July 2017

    Whilst success for a pension scheme will ultimately depend on many unknowns, we believe that it is a major sSponsors may not have realised that many pension schemes have seen record levels of transfer value activity over the last year. This is as a result of the combined impact of the attractiveness of member choice and the pension freedoms introduced in 2015 as well as high nominal transfer values as a result of low gilt yields.

    Read full bulletin here

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    The Railways Pension Scheme: Valuations at 31 December 2016
    6 April 2017

    The latest actuarial valuations for the shared cost sections of the Railways Pension Scheme (the ‘RPS’) are being carried out as at 31 December 2016. While there has been a plethora of recent newspaper headlines lamenting an apparently astronomical increase in deficits across DB schemes in general, the RPS is – as ever – a little different. Funding levels may therefore not be as bad as might have been feared.

    Read full briefing note 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