Brexit and general election fears are fuelling employer covenant risk concerns, research shows.
In defined benefit (DB) pension schemes, the employee is promised an ‘employer’s covenant’—a certain amount of pension when they retire. Therefore, the employer takes a risk that the investments over the years may not be successful enough to provide that amount.
Independent trustee firm PTL published its latest quarterly DB Risk Survey, which asks respondents to state the main risks facing DB pension schemes at a current point in time, this week.
Concern about a change in government rose from 6.2% to 8.7%. Concern about Brexit dipped marginally from 16.95% to 16.67%, but was substantially higher than previous figures of 13.79% in May 2018 and 10.95% in September 2017.
Richard Butcher, managing director at PTL, said: ‘In June 2017, one year after the European Referendum, concerns about employer covenant risk were at around 14%, but fast forward to the start of this year with an exit from the EU on the horizon but no deal agreed, and that figure has risen to 26%.
‘While direct concerns about Brexit and government are not rising significantly, the things that they impact are. It’s clear that the unclarified terms of Brexit are causing an everincreasing circle of uncertainty over everything in its path.’
Butcher commented that GDPR and cyber security concerns were now lower than expected because of a ‘bold response from the media and industry on cyber security which had helped to ensure that the threats were laid bare.
‘Pension savers, members, trustees, employers and schemes were able to educate and be educated, and take action as a result,’ he said.
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