Getting to grips with the employer covenant

The Pensions Regulator has today published a statement for trustees of defined benefit schemes. This details upcoming guidance and e-learning which aim to ensure that trustees improve their understanding of the support that a sponsoring employer provides for a scheme.

This statement sets out the regulator's expectations of trustees in relation to employer covenant issues, and builds on last year's focus on scheme funding and covenant. The regulator's research and casework experience has shown that whilst some schemes take a sound approach, for others improvement is still necessary.

The Pensions Regulator's acting chief executive Bill Galvin said:

"Most trustees will need to monitor the strength of their sponsor's covenant on an ongoing basis and all should have a very good idea of exactly how they might respond in different scenarios. This means they require a good knowledge of the sponsor's business, agreed trigger points for action, and clear options on how to act to increase scheme security.

"Monitoring the covenant can be as important as monitoring investment performance."

The regulator will publish a series of new guidance documents for consultation in the coming weeks:

Guidance on monitoring employer support will provide more information on what trustees should do to measure and monitor employer covenant. It will also outline action trustees should take to strengthen scheme security if needed as a consequence of these assessments. It will provide guidance on how contingent assets and other arrangements can work alongside employer covenant to provide further safeguards.

Guidance for trustees of multi-employer schemes will explain the importance of understanding who is legally responsible for supporting the liabilities in a multi-employer scheme; assessing the strength of the covenant supporting the scheme; and the options for mitigating the risk associated with the departure of an employer from the scheme. The guidance covers all the mechanisms which may apply when an employer departs a multi-employer scheme including the two alternative mechanisms introduced by the Department for Work and Pensions in April 2010.

Following the focus on covenant issues, The Pensions Regulator will be producing revised guidance on transfer incentives, and other situations in which members are asked to consider substituting or converting their benefits. This will replace the current 'inducements' guidance and set out a principles-based approach to the issue.

All publications will be supported by 'bite-sized' e-learning tools to help trustees.

To view the full press release visit:

http://tinyurl.com/tpr-press-release-090610

To view the statement please visit:

http://tinyurl.com/tpr-defined-benefit

Kind regards
Communications
The Pensions Regulator
communications@thepensionsregulator.gov.uk

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http://www.trusteetoolkit.com (Free, online learning for trustees)

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