Regulator publishes guidance materials to help trustees monitor employer support

Guidance for trustees on assessing, monitoring and taking action in relation to their employer covenant has been set out today by The Pensions Regulator. Guidance for trustees on monitoring employer support is published for consultation, and is complemented by an online e-learning module and a short guide tailored for employers.

The guidance includes practical help such as case studies to aid trustees' understanding of how to take appropriate and proportionate action, and checklists of information that may be useful in assessing the financial strength of employers or drawing up a brief for a covenant assessor.

Employer covenant is a crucial element in protecting members' benefits and the guidance on employer support highlights issues on:

- the importance of measuring covenant
- understanding a group's legal structure and an employer's legal obligations
- what to consider when assessing the employer's financial position
- what to consider when valuing alternative forms of scheme security other than cash payments to the scheme
- when to appoint external covenant assessors and the process to follow in doing so
- the importance of regular monitoring of covenant, and actions to take based on this.

Bill Galvin, acting chief executive said: "Where trustees rely on an employer to underpin the risk of adverse outcomes, they must fully understand the strength of that promise by the employer, including how it will be realised, and in what circumstances.

"Trustees should take a view on the appropriate risk exposure for their scheme, based on an informed view of the unique circumstances of their employer and the scheme.

"Assessing covenant and establishing appropriate levels of security carries a cost for schemes and employers; nothing in our guidance is intended to promote costs disproportionate to the benefits."

The regulator's revised Internal controls guidance which is published today highlights procedures for monitoring and acting on deterioration in employer covenant as one of the key risk areas that should be covered by a scheme's internal controls.

The guidance also covers a variety of other risks, such as conflicts of interest, relations with advisers and record-keeping; and highlights the usefulness of statements of internal controls in pension schemes' disclosure to members.

It is part of an ongoing review by the regulator, monitoring the effectiveness of controls that pension schemes have in place.

The regulator will continue to work with other agencies, such as the audit profession, to improve standards of risk management in the industry.

The new guidance documents, e-learning module and short guide for employers can all be accessed on the regulator's website:

http://tinyurl.com/tpr-employer-support

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