Assessing and monitoring the employer covenant

The following Pensions practice note provides comprehensive and up to date legal information covering:

  • Assessing and monitoring the employer covenant
  • What is the employer covenant?
  • Is there a legal obligation to assess and monitor the employer covenant?
  • Regulatory framework
  • How trustees should approach covenant assessments
  • Collaboration between trustees and employers
  • Internal or external covenant assessment—trustees decision
  • Approach to take will depend on scheme and employer risk factors
  • Commissioning external assessment
  • Trustees undertaking own covenant assessment
  • More...

Assessing and monitoring the employer covenant

CORONAVIRUS (COVID-19) UPDATE: Coronavirus has weakened the covenant of some sponsoring employers, particularly those in the hospitality and travel industries. The Pensions Regular (TPR) has issued some guidance to help trustees monitor and assess the employer covenant during the coronavirus pandemic.

For further information, see Practice Note: Coronavirus (COVID-19)—the pensions implications for trustees — Employer covenant issues for DB schemes.
FORTHCOMING DEVELOPMENT: The Pensions Regulator (TPR) is working on the design of a new code of practice for the funding of defined benefit (DB) schemes, which will provide clearer funding standards and implement measures introduced in the Pension Schemes Act 2021, including the requirement for a long-term funding strategy.

On 3 March 2020, TPR published its first consultation on the revised DB code of practice, which focuses on the principles behind the new code. TPR proposes a ‘twin-track’ compliance approach to how it oversees the funding arrangements of DB pension funds. Schemes that can provide required information on investments and risks up-front will be put through a ‘Fast Track’ approach to regulatory sign-off of their funding arrangements. For those who cannot meet Fast Track guidelines, or choose not to, there will be a Bespoke approach which will offer more investment flexibility. However, trustees will have to submit more supporting evidence on this approach,
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