Assessing and allowing for employer covenant

Employer covenant analysis demonstrates good governance and risk management - are you doing enough?

As the number and types of employers participating in the Local Government Pension Scheme (LGPS) grows, assessing employer covenant is becoming more important in order to manage and mitigate risks to funds. Changes to legislation may also have an effect on employer covenant.

The 2022 valuation gives funds the opportunity to review their participating employers with regard to any guarantees or security in place and the “riskiness” of each employer. A covenant analysis demonstrates good governance and risk management. It also helps funds to categorise employers with the aim of developing more tailored funding strategies for employers.

There are different levels of assessment that can be carried out and each fund will have a view of the level of detail that is required.