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Pension fund risk management [7]

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Bullet points include: A scheme may be in deficit (now or at some stage in the future) However, the benefits that it has promised may still be secure if it can rely on its sponsor to make good any shortfalls. This is known as the sponsor covenant Sponsor covenant strengths can vary: One end of spectrum: might only involve a loose intent of the sponsor to top up the scheme over a long period of time, but with sponsor able to walk away even if the scheme was in deficit and the sponsor cash-rich, or sponsor might be a poor credit Other end of spectrum: Legally binding commitment to make good deficits as they arise (perhaps coupled with requirements to keep tangible asset base high in meantime) without ability to walk away from scheme deficit, involving a sponsor with credit rating highly likely to remain strong for long period of time

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