Employer covenant risk could trigger more conservative valuations

1 Jun 2018

Employer covenant risk has moved up on the agenda for trustees of defined benefit pension schemes, according to the latest PTL DB Risk Survey.

The quarterly poll, conducted by trustee and governance services provider PTL highlights that employer covenant risk is considered a key priority by 27% of respondents, compared to less than 25% for the previous quarter.

According to Richard Butcher, managing director at PTL, this could mean that trustees will increasingly aim to reduce their exposure to investment risk and will press for more conservative funding valuations down the line.

Investment risks as a result of Brexit were seen as the second biggest challenge, with 13% of respondents considering them a priority.

A growing number of trustees are also concerned about the introduction of tighter deficit funding rules, the share of respondents highlighting those as a key risk has increased from 10% to 12% quarter on quarter.

The government whitepaper on DB pension scheme regulations published in March hasĀ  outlined proposals for the The Pensions Regulator (TPR) to provide clearer funding requirements. The proposals are currently being reviewed by the Work and Pensions Select Committee.

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