Your questions answered

For a bond, covenant refers to the ability and willingness of an issuer to meet the payments due on the bond. For a pension scheme, covenant refers to the ability and willingness of the sponsor to make up any shortfall between the scheme’s assets and the agreed funding target.

Cyber risk can be broadly defined as the risk of loss, disruption, or damage to a scheme, or its members associated with using information technology. Risks can arise not only from the technology itself but also from the people using it and the processes supporting it. It includes risks to information (data security) as well as assets, and both internal risks (for example, from staff) and external risks (such as hacking). Source: TPR

Buy-out funding levels have improved, with 45% of schemes now estimated to be fully funded on buy-out – expected to increase to 80% of schemes within five years. While endgame innovation continues apace, demand for the insurance route remains undiminished – as demonstrated by the £4.3bn buy-in completed by Rolls-Royce scheme this summer.

A legal obligation of one party (a fiduciary) to act in the best interests of another. Fiduciaries are people or legal entities that are entrusted with the care of money or property on behalf of others. They include pension scheme trustees.

Integrated risk management is an approach used by defined benefit (DB) pension scheme trustees to identify, manage and monitor the wide range of risks (relating to investment, funding and covenant) which might impact the chances of meeting their scheme’s overall objectives.

NEST is the name for the personal accounts scheme established as part
of the reforms of the UK pensions system under the Pensions Act 2008. It
is run by the NEST Corporation, a public body accountable to Parliament via the Secretary of State for Work and Pensions. From October 2012 onwards, the government required employers to introduce auto-enrolment, under which most employees joined a workplace pension scheme unless they actively opted out of it. NEST is the default pension scheme for those employees whose employer decided not to offer an appropriate alternative arrangement.

Salary sacrifice describes a process where an employee agrees to forego or ‘sacrifice’ part of their salary in return for their employer making additional pension contributions on their behalf. The lower salary means a lower NI bill for both employer and employee.

This is defined in the UK Stewardship Code 2020 as “the responsible allocation, management and oversight of capital to create long-term value for clients and beneficiaries leading to sustainable benefits for the economy, the environment and society”. The term is sometimes used in a narrower sense, focusing on monitoring, engagement and voting in relation to investments, with the aim of preserving and enhancing their value.

This is the UK’s main measure of inflation which is calculated in line with international statistical standards. It is used for a wide range of purposes. These include its use as the measure to assess how the Bank of England is performing against its Government-stipulated 2% pa inflation target, as well as to increase state, public sector and statutory minimum pensions, along with some private sector pensions.

The outlook for schemes seeking to insure in 2026 is positive – well-prepared and well-advised schemes will be able to achieve attractive pricing and benefit from innovation in key areas such as member experience.

Operating between mid-2019 and January 2021, PCRIG provided nonmandatory industry-wide guidance for UK pension scheme trustees on climate-related risks and aligning their scheme with the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD).

A holistic approach to measuring a company’s performance on environmental, social, and economic issues. The triple bottom line approach to management focuses not just on the economic value (profit) they add, but also on the environmental and societal value they add or detract.