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Employer Covenant Assessment

It is becoming increasingly important for Trustees to be fully aware of the strength of their Employer’s Covenant and anything that may cause it to change. This will obviously feed through to the strength of the assumptions that they use in their actuarial valuation and any recovery plan that needs to be put in place.

We believe that Trustees should work closely with the employer on the assessment, yet Trustees must always keep their role to safeguard the members benefits. For this reason it may be appropriate to obtain an independent review of the Employer.

However, it is also important that negotiations are conducted in the right manner and trust between the parties is maintained. If conflict arises it is likely to result in higher costs and in the worst case scenario the Pensions Regulator may be forced to impose a recovery plan on the employer.

It is very interesting to consider how the routes used in mediation could fit into these scenarios. Both the Employer and the Trustees have an interest in reaching an agreement; conflict is more likely to get in the way rather than help solve an impasse.

For these reasons Trustees need to take care to ensure that they appoint a professional who has the skills to work effectively with them to reach the best solution for their members.