Atkin trustees, actuaries, consultants & administrators

Covenant reviews being watered down too much

Atkin & Co, the actuarial consultants and pension advisers, has said that covenant reviews have been watered down too much.  They should focus more on the willingness of the sponsoring employer to support the pension scheme financially, rather than just their ability to do so. This lack of willingness needs to be cultivated through open discussion and stronger relationships between trustees and sponsors.

Chris Atkin, Director, commented: “Some trustees see covenant reviews as a simple box ticking exercise but these should stretch further than checking the employer’s immediate cash position, the availability of contingent assets or examining risk levels. The employer covenant is crucial with regards to decisions that go right to the heart of running a pension scheme but any covenant review is meaningless if the relationship between the employer and trustee board is weak. The sponsor should be engaged with the pension scheme. Increasingly, we are seeing the willingness of the employer to support the pension scheme and provide money evaporate. This is not a good scenario for the health of a pension scheme.”

“Our role is to encourage trustees to communicate more effectively with the employer, and delve deeper when it comes to meeting their governance requirements. The irony is that employers and members may view a covenant review as a very expensive exercise, when the sponsor may already be struggling to meet liabilities for the scheme.

“Greater effort must be made to think independently of the required reviews and encourage healthy and open communication channels between the pension scheme and the company.  Employers and trustees should be working together in harmony with the same goal of supporting their pension schemes.”

 

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