Employer covenant reviews

Following the Pensions Act 2004 there is a requirement on trustees to assess the strength of the employer’s covenant at the time of the actuarial valuation and when there are concerns about the financial strength of the employer. The trustees are required to:

  • Make an objective assessment of the employer’s financial position and prospects.
  • Form a view on the ability of the employer to fund scheme benefits on an ongoing basis.

We offer a flexible approach tailored to the requirements of the trustee and actuary and our aim is to provide concise and pragmatic recommendations and advice and keep all stakeholders advised as to progress throughout the process.

Key areas for consideration as part of this review will include:

  • The legal obligations of the principal employer to fund the scheme
  • The effect of the principal employer’s ownership and group structure
  • The scheme’s position on insolvency of the principal employer
  • Reviewing historical published and other available high level financial information
  • Analysing the financial strength of the company and its parent by reference to its balance sheet and key ratios
  • Considering the ability of the principal employer to generate cash flows sufficient to meet its business needs and “free cash” to fund pension obligations
  • Reviewing assets available for pledge/security

We can offer desk top based as well as in depth reviews tailored to individual circumstances and well as ongoing, independent review and advice to the trustees.


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