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The employer covenant is the extent to which a defined benefit pension scheme can rely on the financial support of its sponsoring employer.
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Trustees need to understand the strength of the employer covenant as an integral part of the risk management of their pension schemes. The covenant will help shape trustees’ funding objectives as well as drive their appetite for investment and funding risk in pursuing those objectives.
The Pensions Regulator expects trustees to manage their exposure to covenant, funding and investment risk in an integrated way.
Employers need to understand the extent to which risk in their pension scheme can have an impact on the financial health of their business. Understanding how trustees approach covenant risk enables employers to work effectively with trustees to help keep pension costs manageable.
We believe it is important to understand both trustee and company perspectives to provide effective advice. That is why we advise both trustees and employers on how to manage their covenant risk.

FOR TRUSTEES

FOR EMPLOYERS
For Trustees
Understanding the ability of an employer to support its pension scheme is a central component of trustees’ risk management and has been a core theme of funding guidance published by the Pensions Regulator.
Argyll helps trustees understand the employer covenant. The Regulator has made it clear that it expects trustees and employers to employ Integrated Risk Management in managing covenant, funding and investment risks.
By working closely with their actuarial, legal and investment advisers, we ensure the covenant is integrated into trustees’ funding and investment decisions, as expected by the Regulator. We also support trustees when the covenant changes, usually as a result of corporate activity such as a merger or acquisition, debt refinancing or business restructuring.
We provide independent, conflict-free advice on all aspects of the employer covenant, including:
Covenant assessments and monitoring
Funding negotiations
Corporate transactions and mitigation negotiation
Creative funding solutions and use of contingent assets
Insolvency analysis and outcome statements
Investigations into the availability of TPR’s moral hazard powers
Affordability analysis
Asset Backed Contribution stressed insolvency valuations
Guarantee testing for PPF levy
Scheme apportionments
Insurer due diligence
(buyouts and buy-ins)
We tailor our service to each client which can range from ‘one-off’ covenant assessments to much larger transaction or funding-based projects.
Contact us for more details of our services or for a no-obligation, confidential discussion of your requirements.
For Employers
Defined benefit pension obligations can be material for companies and the level of financial support expected can be volatile. The Pensions Regulator expects trustees to consider the financial strength of the employer in agreeing funding plans and recognises that a scheme’s most valuable asset is a healthy employer.
Argyll helps employers approach funding discussions by understanding how trustees approach covenant risk and ensuring that funding strategies are aligned with the available support. We think creatively to address any covenant concerns and by working constructively with the company’s other advisers, and the trustees, we help ensure that the covenant has value for both company and trustees. In short, we can help keep pension costs manageable.
We provide independent, conflict-free advice on all aspects of the employer covenant, including:
Covenant assessments and monitoring
Funding negotiations
Corporate transactions and mitigation negotiation
Creative funding solutions and use of contingent assets
Insolvency analysis and outcome statements
Investigations into the availability of TPR’s moral hazard powers