Deckchairs on the Titanic
Trustees are always encouraged to monitor the employer covenant but some struggle to see the point
If a company is doing badly it is in no position to insert funds into the pension scheme. Some say this turns a covenant assessment into an academic exercise. But is it?
Trustees are not in a position to judge the whether the contributions offered by the company are reasonable unless armed with an independent assessment of the sponsor. The very presence, or even threat, of an independent assessment may in itself be enough to loosen the employer’s purse strings.
In addition, the recession is fuelling the emergence of some innovative agreements. Employers are understandably unwilling to commit to funding promises if their own financial position is weak. So why not agree a low level of contributions now with an explicit agreement that contributions will rise in the future if the company performs better than expected?
