Defined benefit trustees are becoming increasingly concerned about the strength of their employer covenants, a new survey has revealed, as Brexit uncertainty feeds into broader concerns about the future of sponsors.
24.8 per cent of trustees surveyed by independent trustee company PTL ranked employer covenant among their top three risks, jumping from 15.2 per cent in June.
Increases in longevity and the implications of Brexit for investment were unchanged as the second and third most important risks among the survey population.
DB scheme health as measured by funding levels has improved in recent months. The PPF 7800 index found an aggregate deficit of £158bn at the end of September, down from £220.4bn a month earlier and £413.1bn at the end of August last year.
However, the PTL survey indicates that the long-term viability of sponsoring employers may be of greater concern than these short-term funding measures.
Sankar Mahalingham, head of DB growth at consultancy Xafinity PLC (LON:XAF), said the jump in concerns probably reflects an increased awareness of covenant risk, rather than any 10 per cent deterioration in the health of UK companies over the past quarter.
However, he agreed trustees should take care to analyse their employer’s strength: “More people are realising that… having a good strong employer is probably the best thing a scheme can have now.”