Posts Tagged ‘Covenant advice’

David Davison

The Pensions Regulator has produced 65 pages of guidance for pension scheme trustees and sponsors on assessing and monitoring the employer covenant. We have provided some generic guidance via the attached link – TPR’s guidance on assessing and monitoring the employer covenant.

Helpfully in Appendix B and C from pages 54 onwards there is specific guidance for not for profit organisations. The key recommendation is that commercial operations and donations need to be considered independently with the guidance providing examples where donation income represents a low and high proportion of overall income. Read more »

Richard Smith

Spence & Partners latest blog for Pension Funds Online –

In a world where gilt yields continue to hurt pension scheme funding levels, even at a time when the markets are performing well, support from scheme sponsors is crucial. All the more reason why Trustees should have a strong framework in place to understand and monitor their employer covenant.

This is one of those statements which is easy to make and less easy to implement. Properly assessing the strength of a company and then monitoring the way that changes is no easy task.

Many trustees complain of bland covenant reports which simply re-present financial statements from their company, difficulty in obtaining timely information and then a struggle to identify the main drivers behind the company covenant. Read more »

Alan Collins

Spence & Partners, the UK pensions actuaries and administration specialists, today commented on The Pensions Regulator’s (TPR) annual defined benefit funding statement 2015.

Alan Collins, Head of Trustee Advisory Services at Spence & Partners, said: “The regulator’s funding statement is now a firm fixture in the pensions calendar and this year’s instalment has given trustees, sponsoring employers and advisors plenty of food for thought.  It is also clear that 2015 valuations will contain more bad news than good.  The regulator’s own analysis shows that ‘despite all major asset classes having performed well and schemes having paid £44 billion in deficit repair contributions over the last 3 years…many schemes with 2015 valuations will have larger funding deficits’ and that ‘most schemes will set funding strategies based on lower expected returns than at their last valuation’. Read more »

Peter Scott

The Future Influencers celebrated its one year anniversary with an event in one of @Waterloo’s Alice in Wonderland inspired rooms. Although the Mad Hatter was unavailable, luckily, we had the next best thing, with Angela taking the role of chairperson. In true future influencers tradition the meeting was attended by a mix of familiar faces from prior events and several new attendees brought along by colleagues to join the discussion for the first time. As one of the first time attenders myself I can attest to the welcoming nature of the group and I look forward to coming along to many more in future. Read more »

Susan McFarlane

The Pensions Regulator (“the regulator”) has laid before Parliament a revised Code of Practice 3 (“the Code”) for defined benefit (DB) scheme funding.

This new code takes into account their new statutory objective and reflects their developing approach and changing circumstances since they published the current Code in 2006. The Code emphasises the need for Trustees and employers to work collaboratively in order to achieve an integrated risk management approach which doesn’t compromise the needs of the Scheme or the employer’s plans for sustainable growth.

We have reviewed the revised Code and prepared the following summary for you. Read more »

Marian Elliott

Spence & Partners, the UK pensions actuaries and administration specialists, today said that The Pensions Regulator’s (TPR) new Code of Practice will mean advisers will have to go further in their efforts to advise trustees, by collaborating to present big picture advice and refining their processes and use of technology to deliver cost effective monitoring solutions.

Marian Elliott, Head of Trustee Advisory Services at Spence, commented: “By putting the covenant at the centre of the scheme’s decision making, the Code is essentially crystalising current best practice and encouraging trustees to adopt an integrated approach to risk management. This decision making and planning structure makes complete sense, as the covenant is the main driver of risk in the pension scheme. Investments can underperform, life expectancy can increase, the funding position can worsen – but the only circumstance in which members don’t get their full benefits is if the company can’t weather this negative experience.

“There will certainly be challenges in some sectors however. For trustees of smaller schemes, where budget and time to spend on governance is constrained, the requirement to obtain detailed covenant advice or to carry out asset liability modeling or stress test their strategies may mean they are spending more in this area. This is a good thing though, as the spend on advice to implement and monitor a sensible, coordinated approach to risk taking is far more valuable than spending too much on number-crunching ‘compliance’ work.

“For trustees of schemes with weaker sponsors, there will be a need to justify any investment risk taken or put in place contingency measures, which may result in more prudent investment strategies and higher deficit figures – leading to increased reliance on sponsor contributions for already weak employers. This will be a really difficult, but important, balance for trustees to strike.”

Elliott continued: “Whilst the Code is relatively lengthy, we would urge trustees to engage with this. It is absolutely the right way to think about risk management and should result in better outcomes for members and a better understanding from trustees and sponsors of the issues they need to overcome in order to get their scheme to a fully funded position. There is also no reason why the Code should present any difficulty for trustees, as with the right advice this integrated approach shouldn’t result in significant additional cost – and will almost certainly help make their decision making and monitoring processes a lot clearer.”

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