The Employer Covenant has been the subject of much focus over recent years. Yet trustees are usually ill-equipped to assess its strength. This is an area where they need to take, and be seen to take, expert advice. A thorough review will provide trustees with an invaluable tool.
The Employer Covenant: Issues for Trustees
- the Pension Regulator's Code of Practice states that trustees should
-form a view on the employer's ability to fund benefits
-consider the employer's financial standing when setting valuation assumptions
-consider the employer's ability to pay when setting any funding recovery period
- an Employer Covenant Review is an essential tool for trusteees seeking this information
- an Employer Covenant Review is imperative if trustees are to negotiate on funding issues
Employer Covenant Review: A Vital Tool for Trustees
- your scheme's position
We will review the funding position, assumptions, any recovery period, any security granted by the employer, level of contributions being paid
- asset allocation
The scheme's asset allocation may lead to a positive correlation between the scheme's and the employer's financial position, e.g. on an equity market crash.
- impact of insolvency
Trustees need to know how much the scheme is likely to receive on employer insolvency.
- employer's gearing
Gearing will have a huge impact on the employer's ability to take on extra debt. Such debt might be used to make good a scheme deficiency.
- tailored report
Scheme and corporate information will now be combined to produce a clear, bespoke report, reflecting your precise circumstances. This provides trustees with a vital tool to allow them to
- reconsider whether asset allocation strategies remain appropriate
- negotiate with the employer on contribution levels and recovery periods
- review the suitability of valuation assumptions
