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Actuaries warned on sponsor covenant assessment

Actuaries must make formal checks of sponsoring emp- loyers when advising on pension scheme funding, warns The Actuarial Profession.

In a report commissioned by the Profession’s Pensions Board and published by its sponsor covenant working party, TAP says the first step in giving actuarial advice should be to determine whether or not the sponsoring company is a viable ongo- ing entity once full account is taken of any pension scheme deficit.

Models for actuarial funding advice need to be exten- ded to address the sponsor covenant consistently with the other key risks relating to pension schemes.

The report shows how third-party assessment of the sponsor covenant will help trustees understand and communicate the extent to which their scheme members can rely on their pension.

The move comes after a number of high-profile cases where companies have been unable to honour the financial commitments they made to their employees.

TAP says the ongoing via- bility of an employer can no longer be automatically assumed by trustees and their actuary to be a fore- gone conclusion.

The report was discussed last week by 150 actuaries and guests from the Department for Work and Pensions, The Pensions Regulator and the Pensions Protection Fund.

Pensions Board chairman Wendy Beaver says: “Actua- ries need to consider how they will allow for sponsor covenant risk in their advice. This report sets out a clear road map for how they can achieve this.”

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