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Trustees 'lack objectivity' in judging sponsors

UK - Too few trustees doubt their company's ability to continue sponsoring the pension scheme, consultancy firm Hewitt has suggested.

In a survey of 111 pension schemes varied in size, the consultants found less than 10% were 'seriously concerned' about the financial strength of the employer.

"This reflects much genuine confidence but probably in some cases an, understandable, lack of objectivity," Lynda Whitney, pensions consultant at Hewitt Associates, said.

Under the new funding regime introduced two years ago trustees have to undertake a comprehensive and ongoing assessment of the financial strength of the employer or the employer's covenant.

"At the moment some trustees are taking the information they are given by the company perhaps a little too much at face value and not challenging the assumptions of the business model they are being presented with," Whitney explained to IPE.

She noted it needs an effort on the part of the trustees to get the information from the employer and - if necessary - professional help to understand the information.

Whitney also pointed out "trustees need to have very firm answers around what they did to assess their employer covenant" if questioned by the Pensions Regulator.

"What the Pensions Regulator is going to look at is whether the trustees have really understood and challenged the employer covenant and whether they have looked for independent information and not just gathered information from the company itself," she added.

If you have any comments you would like to add to this or any other story, contact Barbara Ottawa on +44 (0)20 7261 4618 or email barbara.ottawa@ipe.com

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