The term 'covenant' broadly refers to the ability of an employer to support the liabilities of its defined benefit scheme. Of all the risks that trustees need to consider, the Pensions Regulator (tPR) regards covenant risk as one of the most critical.

Uncertainties in economic conditions have led to volatile and increasing deficits in recent years, which have made it even more important for trustees to understand the ability of their sponsoring employers to provide support. The strength of the covenant can also change rapidly and therefore both the trustees and their employers will want to ensure they have mechanisms in place for regular monitoring of the situation.

A completely independent analysis of the employer's financial position

We provide bespoke assessments of covenant strength to support trustees and their advisers through triennial valuations. We also give real world views on suitable recovery plans using the specific circumstances of the scheme and the employer. Such reviews fully take account of guidance set out by tPR and its objective to ensure that scheme funding should not adversely impact upon the sustainable growth plans of employers.

Collaboration between trustees and employers is often the most effective way to achieve optimal outcomes on both sides. We have creative innovative solutions to overcome seemingly intractable funding issues, including the use of contingent assets, the implementation of profit sharing mechanisms and further forms of compromise between employers and trustees.

We also provide covenant due diligence support, where trustees have received proposals to implement asset-backed contributions, and our experience of looking at a multitude of such structures provides real insight and value-add to our clients.

Our solutions

We offer services to both trustees and the corporate sponsors of pension schemes. 

  • Independent covenant assessment
  • Affordability review for scheme funding
  • Non-cash funding solutions
  • On-going covenant monitoring
  • Moral hazard investigations
  • Negotiation assistance
  • Scheme amendment (including closure to accrual) and merger
  • Due diligence on asset-backed contribution structures.
Partner Keith Hinds

+44 (0)20 7865 2716

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