Integration of covenant and investment advice
Understanding your journey
Successful journey planning is a process of balancing covenant, funding and investment factors to develop a long-term strategy for a scheme. In essence, when you prepare your journey plan, you’re balancing the end point you wish to reach (sometimes called your Long-Term Objective) with how you choose to make the journey. You can make that journey by relying on your investment performance and your assets. But you can also make the same journey by relying on contributions from the company that ultimately sponsors the scheme. So, it’s a question of balancing covenant and investment:
- How much investment risk should the scheme be taking and when?
- How much should you ask your sponsor to pay?
- How long can you rely on the sponsor to support the scheme?
- What is your ultimate objective for the scheme?
Our unique approach to journey planning ensures covenant and investment work together as your scheme navigates to its Long-Term Objective and beyond.
Understanding your journey
Successful journey planning is a process of balancing covenant, funding and investment factors to develop a long-term strategy for a scheme. In essence, when you prepare your journey plan, you’re balancing the end point you wish to reach (sometimes called your Long-Term Objective) with how you choose to make the journey. You can make that journey by relying on your investment performance and your assets. But you can also make the same journey by relying on contributions from the company that ultimately sponsors the scheme. So, it’s a question of balancing covenant and investment:
- How much investment risk should the scheme be taking and when?
- How much should you ask your sponsor to pay?
- How long can you rely on the sponsor to support the scheme?
- What is your ultimate objective for the scheme?
Our unique approach to journey planning ensures covenant and investment work together as your scheme navigates to its Long-Term Objective and beyond.
Balancing covenant and investment advice
- We define covenant ratings by the likelihood of the scheme meeting member benefits in full over the scheme’s life. In other words, our ratings do not focus just on near-term forecasts or recent balance sheets but also consider long term risks and opportunities
- To help you set your decisions in a clear context, we provide journey planning factors for every covenant assessment that help you integrate covenant into your scheme’s journey plan:
-
- Affordability of contributions in the near term, which helps assess the level of direct funding or scheme risk that can be supported by the covenant;
- Visibility of cash flows and assets over the medium term – how long do we expect the affordability to last – which helps you consider the balance between direct contributions and investment risk that must be underwritten; and
- Reliability of the employer covenant, which determines the scheme’s ultimate objective and end-game strategy, and the timeframe to achieve it
For many schemes, a key consideration in testing the long-term resilience of the sponsor is ESG risk, and we help Trustees to fully integrate ESG risks into their decisions around journey planning.
Balancing covenant and investment advice
- We define covenant ratings by the likelihood of the scheme meeting member benefits in full over the scheme’s life. In other words, our ratings do not focus just on near-term forecasts or recent balance sheets but also consider long term risks and opportunities
- To help you set your decisions in a clear context, we provide journey planning factors for every covenant assessment that help you integrate covenant into your scheme’s journey plan:
-
- Affordability of contributions in the near term, which helps assess the level of direct funding or scheme risk that can be supported by the covenant;
- Visibility of cash flows and assets over the medium term – how long do we expect the affordability to last – which helps you consider the balance between direct contributions and investment risk that must be underwritten; and
- Reliability of the employer covenant, which determines the scheme’s ultimate objective and end-game strategy, and the timeframe to achieve it
For many schemes, a key consideration in testing the long-term resilience of the sponsor is ESG risk, and we help Trustees to fully integrate ESG risks into their decisions around journey planning.
To further support your journey planning, we have developed a range of unique, award-winning tools to increase your understanding of covenant and scheme risks and opportunities over the journey plan, and to help you reach the best outcome for your scheme from where you stand today. These include:
- PensionSketch, an integrated journey plan tool that helps Trustees to assess the trade-offs between covenant and scheme risks, by modelling the impact of specific scenarios on both the sponsor and scheme;
- PensionSim, an interactive ‘flight-simulator’ IRM education tool. It allows users to make scheme funding and investment decisions over the lifetime of a scheme in a safe, real-world environment
- MACCI (our Methodology for Analysing Climate Covenant Impact), a first-of-its-kind modelling tool that highlights employer sponsor climate risks across the entirety of a sponsor’s value chain under specific climate scenarios. Please refer to our ESG and sustainability integration page for further details
Your team
Sinead Leahy
-
Co-Head of Cardano Advisory
-
Managing Director
Your team
Sinead Leahy
-
Co-Head of Cardano Advisory
-
Managing Director
