The guidance published by the Pensions Regulator confirms the view of Aon Hewitt, the global human resources consulting and outsourcing business of Aon Corporation, that trustees should urgently put in place formal parameters for covenant monitoring.
Aidan O’Mahony, principal consultant at Aon Hewitt, said: “The Regulator has further clarified and sharpened the recommendations it made before the start of the consultation process. As pension funds are reliant on sponsors for any shortfall in funding, the strength of the employer covenant is a critical component in protecting members’ benefits, and monitoring this should become a top priority for trustees.”
“In essence, pension funds are some of the biggest corporate creditors and therefore trustees should put in place a robust, formal process to monitor the covenant on an ongoing basis. Trustees would benefit from setting up a monitoring plan, which includes tracking a select number of key performance indicators, such as business performance and cash flow measures – just as other creditors do.”
Aon Hewitt believes that these measures should include an information protocol whereby trustees are able to access the level of information needed to assess more effectively the sponsoring company’s covenant.
Aidan O’Mahony added: “The Regulator recommends that trustees need to work constructively with employers towards having better access to information – with confidentiality agreements in place if required – and a more detailed dialogue. However, the key issue is quality rather than quantity of information as most trustees do not have the time to sieve through endless documents. Any covenant monitoring process that is implemented should, nevertheless, be proportionate in terms of cost and benefit. ”
Source : Aon Hewitt Press Release
