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.

 

 Overview

 
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 Employer Covenant and the draft Code of Practice on Funding Defined Benefits
    3 February 2014

    ​The employer covenant has been placed firmly at the centre of the Pensions Regulator's new integrated risk management framework for trustees. This is set out in the new draft Code of Practice on Funding Defined Benefits, published on 2 December 2013.

    In this 'insight' we focus on the employer covenant aspects of the draft Code of Practice and explore their implications for both trustees and employers.

    To read more, click here.

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    Consultation on new code of practice for DB scheme funding
    17 December 2013
    On 2 December 2013, the Pensions Regulator (TPR) published for consultation a draft revised code of practice on defined benefit (DB) scheme funding, as well as a draft DB funding policy and a draft high-level DB regulatory strategy.


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    Apportionment arrangements and the employer covenant
    1 December 2013
    ​We have witnessed an increase in use of both scheme apportionment arrangements and flexible apportionment arrangements in the last 12 months or so as corporate entities reorganise themselves in order to cut costs or prepare to sell off non-core businesses.

    In this "insight" we review the key issues trustees and employers of defined benefit pension schemes should assess and understand when considering an apportionment arrangement. We focus on the funding test required for these arrangements and their wider covenant implications.

    To read more, click here.
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    Integrated risk management plans
    1 September 2013
    ​The Pensions Regulator (the "Regulator") is urging trustees to take an integrated approach to addressing covenant, investment and funding risks. When the Regulator first started to encourage trustees to take independent advice on the employer covenant, few did so but the majority do now.

    So will we start to see a rise in the number of schemes pulling together the three key threads that affect scheme funding in some form of integrated risk management plan? We believe this is a pretty sure bet.

    Click here to read why and how employers can start to prepare themselves for the challenges that await.

    Read more
    Employer covenant in the current economic environment
    1 July 2013
    Credit crunch, double-dip recession that wasn't, quantitative easing and a gloomy economic outlook. Recent years have seen a plethora of economic developments that have affected pension schemes and their sponsors. We provide our "insight" into these events and the impact they have had on the employer covenants supporting UK pension schemes. We also consider the additional factors that companies and trustees may now need to have regard to when entering the next round of pension scheme funding negotiations.

    To read more, click 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