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Simon Kew explains the importance of employer covenants in a challenging economic environment

With reports that the economy is once again in a downward spiral, we look at how we should be protecting our assets.

After yet another report of negative growth from the National Office of Statistics, Simon Kew explains how looking after your pension is more important than ever.

As Simon explains, trustees and employers are now coming round to the fact the employer covenant is one of the most important aspects of a pension scheme and should be managed accordingly in light of recent market conditions. Kew adds: “The Pensions Regulator’s guidance also encourages regular investigations into the strength of the covenant.”

For Kew the covenant should be reviewed by trustees as part on an ongoing process rather than just when the economic environment is challenging.

“This is certainly the thrust of The Pensions Regulator’s (TPR) latest guidance on the covenant published in November 2010. Nevertheless, the downturn has of course focused trustees’ attention on their sponsors, particularly at a time when asset values are depressed and deficits are rising.”

Jackal’s Kew believes for schemes looking to create an effective recovery plan the absence of a comprehensive review can make it difficult for them to do so.

“Undertaking an assessment of the sponsor’s willingness and ability to support the pension fund provides an essential framework for defining risk parameters, setting investment strategy and putting in place contribution schedules.

Given that the sponsor covenant effectively lays the foundations for a scheme’s recovery plan, trustees should not underestimate the need for a transparent and independent assessment,” says Kew.

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Category : Employer Covenant — admin @ 3:05 pm August 22, 2012

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