M&A: Getting to grips with the impact on schemes
All over the world corporates are rebuilding their balance sheets, accumulating record levels of cash and having their valuations boosted by upturns in stock markets. All of this, along with other factors, means they are looking to grow by merging with or taking over other companies.
Too big to fail: Could some UK schemes pose systemic market risk?
The International Monetary Fund has warned that the practice of companies derisking pension schemes to an insurer, meaning one entity would cover the risk for numerous funds, could threaten the stability of the US financial system should an insurance company fail.
Deloitte comments on today's guidance from the Pensions Regulator on employer covenant
The guidance reinforces the principle that assessing covenant, including an appreciation of wider market dynamics, is not a ‘one-off’ process. Monitoring should be in force, along with appropriate triggers, to ensure that trustees can react nimbly and appropriately to changes in covenant. This monitoring should run alongside planning for potential outcomes in investment or funding assumptions, through ‘stress-testing’.
Restructuring Services Pensions Advisory
The Pensions Regulator has made it critical for stakeholders of defined benefit pension schemes to understand the businesses that support them. This includes assessing the strength of the employer's financial position and prospects as well as its legal obligation to fund the scheme's benefits (known as the 'Employer Covenant'), and the impact of employer or scheme events on the scheme’s position.
What we do
Our market leading professionals provide a tailored solution for every situation, ensuring that our clients' specific requirements are fully identified and addressed and developing a cost efficient approach.
Our key services are:
- Employer Covenant Assessment for Trustees
- Employer Covenant Assessment for Employers
- Restructuring Support
How we can help
We are committed to providing clear, unambiguous advice and creating innovative solutions for our clients. We are firm in supporting our clients' interest, while recognising the Employer / Trustee relationship is ongoing and long-term and thereby benefits from a pragmatic, consensual approach to discussions.
Our team is adept at harnessing the unparalleled breadth and depth of talent and expertise across the firm, often working with the Deloitte Consulting practice to leverage specific sector expertise, and/or actuarial benefit advice from Deloitte Total Reward and Benefits.
Trustees: Employer Covenant Assessment
Commentary from the Regulator has created an expectation that Trustees will actively monitor the strength of the Employer Covenant. However, Trustees do not necessarily have a background in finance and where they do (e.g. finance director) there may be a perception of a conflict of interests between their roles for the Company and as a Trustee. Consequently assessing and monitoring the performance of the business can be challenging.
Employers: Employer Covenant Assessment
We believe that well-run businesses will naturally seek to ensure their defined benefit pension obligations are met, from facilitating the triennial valuation process to considering the impact of corporate events on the Scheme. However, we also understand that management will want to focus on the business’ key commercial issues while avoiding making unnecessary concessions to the Scheme.
It is often the case that a defined benefit pension scheme is a significant or even the largest creditor when we are called in to look at a business experiencing financial distress. Considered in conjunction with the Pensions Regulator’s moral hazard powers, this means that having a strong grasp of the issues and obligations pertaining to the scheme, as well as a range of appropriate solutions, is essential for all stakeholders during a restructuring process.