Can employers avoid paying too much by leading on the covenant assessments?
Can employers avoid paying too much by leading on the covenant assessments?
16 Jan 2025
The new covenant guidance and how this impacts journey planning provides an opportunity for employers to take control of the covenant assessment process. Employers who familiarise themselves with the new guidance can present a covenant picture to trustees for an optimal valuation outcome, resulting in a long-term strategy that better aligns the objectives of the employer and scheme.
At a glance
- Employers have an opportunity to take control of the covenant assessment process as part of the crucial first valuation under the new regime, to present a picture to the trustees to set a long-term strategy for better outcomes.
- A lack of engagement may result in higher contributions; employers can no longer afford to be passive in the process.
- When using its powers for non-compliance, The Pensions Regulator will consider the covenant guidance, containing examples of covenant assessment.
- Key new concepts include reliability period, over which risk is taken and deficits funded, and longevity period, which impacts time to funding on low-risk measures.
This edition of XPS Express is the fourth in a series on setting long-term strategies – read parts one, two, and three.