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UK actuaries told to assess sponsor covenant

UK - The Actuarial Profession is urging actuaries to make formal assessments of the viability of companies which sponsor pension schemes.

The call, from a report by the profession's Sponsor Covenant Working Party, would usually require a third party assessment of the financial strength of the sponsoring employer.

The report, commissioned by the Profession's Pensions Board, is set to be discussed tonight at a meeting of actuaries, pensions industry bodies and the Department for Work and Pensions, the Pensions Regulator and the Pensions Protection Fund.

"Our recommendations are designed to ensure that actuarial advice addresses all the key risks that trustees face and to help actuaries work with other experts to provide trustees with the best overall advice under the new UK pensions regime," said working party chairman Tim Gordon.

The report recommends that the first step in giving actuarial advice should be to determine whether or not the sponsoring company is a "viable ongoing entity" once full account is taken of any pension scheme deficit.

And it says that models for actuarial funding advice need to be extended to address the sponsor covenant consistently with the other key risks relating to pension schemes.

The report shows how third party assessment of the sponsor covenant will help trustees understand and communicate the extent to which their scheme members can rely on their pension, the Profession said.

The move comes after a number of high profile cases where companies were unable to honour the financial commitments they made to their employees.

"The need for trustees to allow for sponsor covenant risk is fast becoming accepted as part of the new UK funding regime," said pensions board chairman Wendy Beaver.

"This is being actively encouraged by the Pensions Regulator in order to protect pension scheme members and the Pension Protection Fund (PPF).

"This will also help to achieve a fairer distribution of pension costs between all the employers who shoulder the cost of the PPF through the levies they are required to pay."


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