Pensions Covenant Advisory

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Our services

Since our UK covenant advisory team was founded in 2005/6 we have developed an excellent track record of advising stakeholders, including companies, trustees and the Pensions Regulator, on all employer covenant matters. We currently provide advice and support to clients in the following key areas:

Triennial valuation related covenant advice

  • We help Trustee and corporate clients assess the strength of employer covenants during a pension scheme’s triennial valuation process. We take a proportionate, tailored approach to meet our client’s needs and ensure we deliver comprehensive advice.
  • Our holistic approach to assessing the strength of the employer covenant ensures we work closely with actuarial and investment advisors to consider the wider financial flexibility of sponsoring employers, and the ability to underwrite scheme investment risk.

Ongoing covenant monitoring

  • We work with Trustees to develop bespoke frameworks that support periodic employer covenant monitoring protocols for pension schemes.

Recovery plan advice

  • We provide detailed affordability analysis to determine the extent to which sponsors can contribute cash to fund deficit recovery over a given period.

Integrated Risk Management

  • In response to tPR’s 2014 code of practice, we have worked directly with our actuarial colleagues to develop the EY Affordability Risk Modeller (“ARM”). This interactive tool enables Trustees and sponsors to gain new insight into how affordable their scheme is given investment risks and employer covenant constraints, and allows them to model the impact of varying investment and funding strategies.

Integrated Risk Management: A new approach to pension scheme risk modelling

“Affordability Confidence” is a measure to track risk in your defined benefit scheme. Do you know your level?

In December 2015, the Pensions Regulator released regulatory guidance on Integrated Risk Management for trustees of defined benefit pension schemes.

It’s a complex subject, but we have summarised the guidance to give all trustees the confidence they need to address the issue.

To help trustees comply with the guidance and managing funding risks, we have developed ARM, an innovative, integrated modeller that measures a scheme’s “Affordability Confidence”. It projects forward a range of possible funding positions and potential cash contributions – allowing for investment risk and alongside covenant constraints – to determine confidence in a scheme’s future affordability, and provides a single measure from which to address the complexity of integrated risk management for a scheme.

Find out more

Event driven covenant advice

  • We help clients consider if employer level transactions may materially impact employer covenant. These can include refinancings, business sales or acquisitions, exceptional dividends paid to shareholders, and pension scheme mergers. Where there is material detriment we advise on mitigation packages which can take many forms (FAA/bulk transfers)
  • We also advise on corporate distress situations, including where solvent employers are seeking to manage pension scheme exposure. This includes assessing the viability of corporate restructuring solutions driven by an overwhelming pension liability.

Asset backed collateral

  • We also identify and help our clients implement contingent asset structures to augment cash recovery plans, e.g. through Scottish Limited Partnerships (“SLPs”).

PPF certification and asset backed collateral valuation

  • We help Trustees certify contingent assets – usually in the form of parent company guarantees –  to support the annual PPF Levy Determination process for their pension schemes.
  • We also provide valuation assistance to Trustees wishing to value asset backed collateral for either PPF Levy or annual financial reporting purposes

Expert witness

  • We provide expert witness services for regulatory matters, and have recent experience acting as an independent expert in the High Court in a complex multi-employer case.

Trustee training

  • We provide training to Trustees, including an overview of tPR’s framework and latest guidance, our approach to assessing employer covenant strength and affordability, recovery plan options, including how SLP structures work, and the impact of corporate transactions on employer covenant and pension schemes.

Find out more about our Pensions assurance and advisory services.

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Karina Brookes, Leader of EY's London Pensions Covenant Advisory Practice, takes a detailed look into The Pensions Regulator's latest guidance, issued in August.


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