Covenant advisory services

The employer covenant is a critical factor in securing members’ benefits and making decisions regarding a pension scheme’s funding and investments. The financial strength of the employer determines the degree of prudence trustees should use in the valuation of the scheme’s liabilities and the level of risk that can be supported in the scheme’s investment strategy. Our dedicated team of experts - who are members of the Punter Southall Transaction Services group - can assist pension scheme trustees in assessing and monitoring the strength of the employer covenant, be that in relation to corporate activities or in the context of the actuarial valuation.

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.



Our covenant advisory services include:
  • detailed covenant assessments to understand the impact of major corporate activities
  • high level covenant reviews to determine the sponsoring employer’s financial position and prospects, the scheme’s security position and the level of prudence needed for scheme funding
  • regular covenant monitoring to make sure pensions scheme trustees are aware of any changes in the sponsoring employer’s financial position
  • ongoing negotiation support to guide pension scheme trustees through discussions with the sponsoring employer

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:

  • Scheme events: triennial actuarial valuation, investment strategy review, apportionment arrangements, withdrawal arrangements, transfer value calculations, scheme merger or scheme closure
  • Corporate events: merger or acquisition, divestment, refinancing, restructuring, deterioration of trading performance, dividend payment or share buy-back
Focusing on areas of key importance, we are pragmatic, cooperative and creative in our approach. Our advice is clear and constructive.

 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.
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    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.

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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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    The Discount Rate Debate
    14 February 2017

    One of the key assumptions in a scheme’s triennial funding valuation is the discount rate. For many schemes this has been derived based on...

    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