PwC UK responds to The Pension Regulator's Statement of strategy consultation

Commenting on the Consultation, Katie Lightstone, Partner in Employer Covenant and Restructuring at PwC UK, said: 

“The consultation gives the clearest indication yet of the level of granularity The Pensions Regulator is seeking to collect when it comes to covenant. This includes potentially market sensitive information such as the employer’s forecast free cash flow, investment in growth and expected shareholder returns. If implemented in its current form, the approach could force companies to consider greater disclosure to trustees which will need to be balanced with legal obligations in different markets. 

“Under the proposals, Trustees will need to consult with the employer on covenant metrics reported, and the employer has a place for comment in the Statement - in reality this is likely to result in the need to agree covenant measures reported. 

"Given the subjectivity of metrics such as the ‘reliability period’ over which there is ‘reasonable certainty’ over the trustee’s covenant assessment, if finalised as planned early engagement between trustees and sponsors will be essential.”

Gareth Henty, Pensions Markets & Services Leader at PwC UK, adds: 

“For the first time we have real clarity on what the Regulator is expecting to be provided with in the Statement of Strategy, which will need to be documented in one of four standard templates depending on whether the scheme is following a fast track or bespoke approach and depending on scheme maturity. 

"Interestingly the consultation proposes that the long term objective must be defined as one of buy-out, run-off, superfund or alternative consolidator, reinforcing recent messaging from the DWP supporting run-on and alternative derisking solutions, including the recently proposed public consolidator.  

"Whatever the final requirements may look like, providing TPR with full and accurate information will be a complex process. Comprehensive engagement will be needed between Trustees and Sponsors to effectively integrate the new employer covenant metrics with the cashflow projection and maturity assessment of the scheme, and thinking through how the journey plan, actuarial assumptions and investment strategy will evolve towards the long term objective.”