COVID-19 is a black swan event beyond any of our expectations and all employers are potentially affected by the very serious impacts this has had on our society, on markets and on our economy.

The response from Trustees needs to be integrated, recognising the degree of future potential volatility in both the funding position and the scale of the covenant on which the scheme relies.

In considering the impact on the Sponsor covenant you should be asking yourselves and your advisers how sensitive to these impacts the Sponsor is and whether the crisis is likely to cause a degree of stress that would result in the Sponsor being unable to support the scheme, taken together with all of their other financial commitments.

To assess this sensitivity, you should consider the impact on:

  • Demand for the goods or services that the Sponsor provides.
  • Supply of the goods and services that the Sponsor needs to satisfy its business, operational and financial needs.
  • The cost of business, including direct, indirect and financing costs and business profitability and cashflow.
  • Sources and uses of cash, liquidity and financing arrangements and compliance with financial covenants.

Most of these impacts will not be certain so you should seek information from your Sponsor, identify and quantify risks, consider downside sensitivities, assess employer actions taken and identify potential mitigation plans for such impacts.

Contingency plans should be developed to counter:

  • Adverse impacts to agreed recovery plans including deferrals and defaults (notifiable to tPR).
  • Sponsor actions detrimental to the creditor ranking of the scheme or to the strength of the covenant.
  • Distress leading to defaults to Sponsor financing arrangements.
  • Proposals by employers to subordinate the scheme to the ranking of other creditors.

The aim is to secure the long-term future of your scheme and Sponsor, considering any request for forbearance having taken into account whether the scheme is being treated fairly in relation to other equivalent creditors and stakeholders.

Key areas for action include:

  1. Talking to your Sponsor to understand what steps management are taking and its contingency plans. Be prepared to share more recent and regular scheme funding updates and the Trustees’ contingency planning.
  2. Making sure the current IRM policy and risk register / risk monitoring framework is up to date and fit for purpose.
  3. Consider the need for a heightened level of monitoring, including regular update calls with management; this may require more detailed financial information from the Sponsor than is normally the case. Where you have serious concerns, consider whether investment or risk management actions are needed.
  4. Trustees with 2020 valuations may need to explore flexibilities in the system including the treatment of post-valuation experience, whether or not recovery plans could include a contingent element, for example linked to the Sponsor’s future performance, as well as the timing of agreeing the valuation.
  5. Consider whether the impact on the Sponsor would cause you to review statements in the Scheme Annual Accounts if they are due or any other communications made by the Scheme.

These are difficult and unprecedented times. We are here to help. As experienced covenant and corporate finance advisers we can assist you in assessing the impact and can provide advice and input to developing an optimal strategy for your scheme.


For further information or to discuss your scheme’s position, please do get in touch:

Paul Jameson, Managing Partner – 020 7337 4142 (

Trevor Civval, Senior Partner – 020 7337 4110 (

Arabella Slinger, Senior Partner – 020 7337 4115 (