Employer Covenant Review

Understanding the quality and long-term stability of this support, along with associated risks, is essential to Integrated Risk Management (IRM). Defined by The Pensions Regulator (TPR) as “the employer’s legal obligation and financial capacity to support the scheme now and in the future,” the employer covenant is a key aspect of IRM. TPR’s guidance highlights it as one of three primary risks managed by a pension scheme, with the other two - funding and investment - being dependent on a thorough assessment of the employer covenant's strength and its ability to support these risks.

Our expertise in corporate finance, accounting, and legal matters, combined with direct trustee experience in insolvency and corporate restructuring, enables us to focus on crucial trustee concerns: long-term investment and funding risks to the scheme and the employer covenant’s capacity to bear these risks if needed.

We provide employer covenant reviews accompanied by detailed, actionable recommendations for improvement, options to enhance the covenant, and strategic planning for the scheme’s progression towards its long-term goals.

Given the dynamic nature of businesses and markets, employer covenant risk is not static. Active monitoring by trustees is vital. While TPR recommends at least annual reviews of the employer covenant, we advise more frequent assessments, especially in cases of increased risk or deterioration. We assist trustees in establishing robust monitoring frameworks, integrated with their investment oversight, and in developing contingency plans to address adverse developments promptly.