LONDON (20 September 2018) – Aon, the leading global professional services firm providing a broad range of risk, retirement and health solutions, has said that recent major corporate failures highlight the need for pension schemes to stress test employer financial forecasts and to receive more robust covenant advice from their advisors.
The Pensions Regulator has recently responded to high profile corporate failures by introducing a "clearer, quicker and tougher" approach, but schemes and their covenant advisers also need to adapt to a more difficult pensions environment.
Aidan O’Mahony, partner and head of covenant advice at Aon, said:
“The high profile corporate failures of the last few years have clearly highlighted the issues pension trustees face when their sponsor hits the rocks. For covenant advisors, it’s clear that more in-depth sector and financial analysis is required - especially when reviewing employers' financial forecasts which are often very rosy.
“While it was never acceptable to take company forecasts at face value, there is now an even greater need for stress testing, including downside scenario analysis, to ensure that trustees come away with a deeper understanding of an employer's future prospects if things don't work out as planned.
Once this stress testing has been completed, trustees also need robust recommendations and support from their covenant advisors to help them negotiate deficit repair and contingency plans negotiations with employers. For example, recommendations could specify a minimum level of deficit repair payments linked to an appropriate length of recovery plan. Similarly, putting in place a contingency plan would bring more clarity around coping with unexpected downside events.
Aidan O’Mahony continued:
“A better understanding of an employer's downside risks and more pointed covenant advice should lead to better pension outcomes for members. We also believe that covenant advice is most effective when fully incorporated into an Integrated Risk Management framework, in order that all parties fully understand how the covenant, investment and funding risks interact.”
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Notes to Editors
Aon plc (NYSE:AON) is a leading global professional services firm providing a broad range of risk, retirement and health solutions. Our 50,000 colleagues in 120 countries empower results for clients by using proprietary data and analytics to deliver insights that reduce volatility and improve performance.
Aon announced in May 2018 it will retire the business unit brands of Aon Benfield and Aon Risk Solutions, which follows the retirement of the Aon Hewitt business unit brand in 2017. This move was designed to increase the rate of innovation across the firm and make it easier for colleagues to work together to bring the best of Aon to clients. Aon has five specific global solution lines: Commercial Risk Solutions, Reinsurance Solutions, Retirement Solutions, Health Solutions and Data & Analytic Services.
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