Integrated Risk Management (IRM)

Managing risk is an integral part of running a quality scheme and achieving good pension scheme governance.

The Pensions Regulator code of practice outlines an integrated approach to three key risk areas:

  1. The employer covenant
  2. Investment
  3. Funding

An employer covenant review is an important tool that trustees should regularly consider in order for them to assess the ability of the employer to support a scheme now and in the future. The Pensions Regulator considers that a regular assessment of the covenant of a scheme is crucial in providing the trustees with an independent assessment of the scheme and will assist the trustees in discharging their duties and responsibilities to the scheme. 

The specialist pensions team at Ensors are able to help trustees of schemes carry out such reviews. They are also able to apply and combine specific pension scheme knowledge with a level of financial analysis and scrutiny appropriate to the employer and the scheme to enable the trustees to assess the legal, scheme and financial aspects of the employer.

The employer covenant review is particularly important where there are doubts over the financial security of the sponsoring employer or there is uncertainty whether it is able to meet its obligations in relation to an existing recovery plan. It is also a useful tool when requesting an amendment to any recovery plan or if it is difficult for the trustees to understand the potential impact on the scheme of the employers future business plans.

In theory a strong employer is able to make higher contributions to the scheme over a shorter recovery period. A full assessment of the employer enables the trustees to understand fully whether they are able to make risky or rather more prudent investment decisions and also negotiate a recovery plan which is realistic and affordable to the employer.

We perform a service specifically tailored to the needs of each scheme taking into account proportionality and risk, all within a fee structure that is agreed in advance with the trustees. 

In a good number of cases the review can take the form of a ‘desk review’ but still provides the trustees with a sufficiently detailed written report on the financial strength of a sponsoring or participating employer. This will enable the trustees to be able to take informed decisions in relation to the financial strength of the employer and its ability to meet obligations to the scheme.

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