The Pensions Regulator defines the employer covenant as ‘the extent of the employer’s legal obligation and financial ability to support the scheme now and in the future’.
The employer covenant is essential to the operation of the Fund. The ability to call on support from employers in the future allows us to adopt an investment strategy that seeks to optimise returns, which ultimately benefits employers through lower contributions. It is therefore important that we understand the covenant strength of each employer in the Fund.
Our assessment of each employer’s covenant helps us to understand how much support the employer can provide to the Fund, both in the short and longer term. Employer support is taken in the context of how much cash can be made available to the Fund, as and when such cash support might be needed.
Each employer’s covenant strength is reflected in the assumptions used to value the Fund’s liabilities.
If you would like to understand more about how employer covenant is assessed by the LPFA, then please contact the Employer Management Team.