Managing Pensions in the downturn

View video transcript for Managing Pensions in the downturn

The downturn is having a severe impact on the employer covenant of many pension schemes. At the same time asset values have decreased significantly increasing scheme funding deficits.

This means that companies can expect trustees to be more concerned about the strength of the employer covenant and to be considering the options they have to protect the scheme’s position as a significant unsecured creditor.

Trustees will usually seek to appoint an advisor to complete an employer covenant review, which is an objective and independent assessment of the overall financial strength of participating employers of a pension scheme. They will then use the results of this to evaluate their options, possibly calling a new valuation, increasing the technical provisions or decreasing the recovery period. All of these options could have a detrimental impact on the company at a time when cash is probably best used elsewhere in the business.

However our experience has shown that if a company takes control early on in this process and engages their own advisors to complete the employer covenant review they can identify more cost efficient methods of supporting the pension schemes than cash.

Presenting this information to the trustees in a clear and open way leads to a smoother and more equitable scheme funding negotiation process, whilst retaining a good ongoing working relationship for the future.

10 key questions

1. Who is really in control? The company? The bank? The trustees?
2. Do you understand how the Pensions Regulator works?
3. Who is advising the trustees and what is their approach likely to be?
4. On insolvency would the buyout debt be paid off in full?
5. What is an appropriate recovery period?
6. Have you considered alternative forms of supporting the pension scheme to cash?
7. Funding outside the triggers set by the Pensions Regulator? Does it matter?
8. How does your employer covenant compare when benchmarked against the industry?
9. Do you understand how the rating agencies will view your proposed pension solution?
10. Would your approach stand up to external scrutiny?

How we can support you

We have developed a bespoke approach which will meet your needs within a framework tried and tested with companies, trustees and the Pensions Regulator

PwC adopt a holistic approach, working with existing advisers and providing clear recommendations.

Our team has unique Pension Regulator and Pension Protection Fund insight, with an excellent track record of providing commercially sustainable solutions.