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We typically carry out our employer covenant reviews at two levels: desktop review and in-depth review. We will agree in advance with our instructors (trustees, sponsoring employer or actuary) the most appropriate level of review for the pension scheme’s circumstances.
Desktop review
This usually involves:
- Reviewing published and other high-level information
- Considering the ability of the sponsoring employer to generate sustainable cash flows
- Analysing the strength and trends in key balance sheet ratios
- Forming a view on the employer's ability to meet current pension scheme obligations
- Evaluating possible insolvency outcomes, including reviewing the levels of security attaching to assets in the balance sheet and their likely recoverable values
- Providing commercial and practical recommendations.
In-depth review
In addition to the desktop review this usually involves:
- Reviewing management information and forecasts
- Undertaking detailed analysis of the current financial position
- Reviewing the potential impact of changing circumstances with regard to forecasts
- Forming a view on the employer's ability to meet an increased level of pension scheme obligations in future.
Monitoring
We provide support for trustees at covenant review meetings with the employer. We also help assess the impact of changes in circumstances and notifiable events such as increased trading losses, litigation, changes in market conditions or the loss of a major customer.
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