Employer Covenant Assessment
The Pensions Act 2004 introduced the Scheme Specific Funding regime under which the Pensions Regulator indicates that trustees should review the strength of the sponsoring employer’s covenant when determining the pension scheme’s technical provisions and deficit recovery plan. Furthermore, the Pensions Regulator also expects trustees to assess the impact of certain corporate activities on the covenant provided to the pension scheme and encourages them to seek independent advice in this specialist area.
At Punter Southall we have a dedicated team of experts who can assist pension scheme trustees in assessing and monitoring the strength of the employer covenant. This team is part of the wider Punter Southall Transaction Services (PSTS) group which allows our covenant experts to build on and fully leverage PSTS’s strong position and vast experience in the corporate transaction market.
Our covenant advisory services include:
- detailed covenant assessments to understand the impact of major corporate activities (such as mergers, de-mergers, acquisitions, restructurings, refinancing, debt re-payments, share buy-backs, dividend payments etc.);
- high level covenant reviews to determine the company’s financial position and prospects, the scheme’s security position, and then the level of prudence trustees need in setting the technical provisions for the actuarial valuation of their scheme’s liabilities;
- regular covenant monitoring to make sure trustees are aware of any recent changes in the sponsoring employer’s financial position and covenant strength allowing them to spot any warning signals early on; and
- ongoing negotiation support to guide trustees through discussions with the sponsoring employer regarding the affordability and security aspects of the covenant, required contributions for the scheme, the use of contingent assets, length of recovery plans or appropriate mitigation for any weakening of the covenant resulting from corporate transactions.
We focus on what is of key importance both to the trustees and to the Pensions Regulator (typically the short-term security and long-term prospects of the sponsor) and address any covenant issues in relation to that.
We are pragmatic, cooperative and creative in our approach, and provide clear, constructive and integrated covenant advice.
For further information on our Covenant Advisory Services contact Lorant Porkolab on 020 7004 0074 or by email.
