LPFA to check employer covenants on sector-wide basis

The London Pension Fund Authority (LPFA) is working on new sector-wide covenant checks for colleges and universities with further consultation planned for charities and housing associations in the coming months.

The LPFA said that understanding the strength of employer covenants is important for local government pension funds, in order to avoid insolvent employers passing on liabilities to solvent employers and ultimately the taxpayer. LPFA employer services team manager, Tony Williams, commented: “It is only right that within our fund’s overall governance procedures we do all we can to understand the strength of employer covenants and minimise risk. A better understanding of the challenges presented by each sector, and employer, ensures we seek appropriate assurance or security from the employer. Alternatively, we can set employer contribution rates at a level which reflect their covenant strength, together with the overall aim of ensuring they are fully funded as quickly as possible.”

The LPFA is to implement sector-wide checks from the autumn. It started a new risk-based approach to individual employer covenant checks from earlier this year. It said it is now working to implement security arrangements totalling £311 million as part of this process, including first charge arrangements and parent company guarantees. The LPFA provides benefits to around 20,000 staff at not-for-profits employers and around 40,000 pensioners, many of whom worked at the Greater London Council and the Inner London Education Authority.