Employers and trustees must be more vigilant in managing the employer covenant because of a rise in corporate restructuring due to challenging economic times, Punter Southall Transaction Services has said.

PSTS’ latest Insight report said an increasing number of businesses are set to undertake financial or operational restructuring to avoid insolvency, financial distress or significant deterioration in trading performance. Companies like Premier Foods, TUI Travel, JJB, Logica and Punch Tavern have already undergone some form of restructuring recently.

Head of Punter Southall’s covenant advisory team Lorant Porkolab said: “Many restructurings affect the legal shape of the business. It is critical for trustees to understand where this leaves the pension scheme and its sponsoring employer.

“Restructuring can involve moving key assets out of the sponsoring employer and weaken the covenant support available to the pension scheme. This can also happen even if the legal position remains the same.

“Both employers and trustees should prepare to work together on mitigation to put the scheme back in the same place as it was before the restructuring. It’s important that everyone is pragmatic and commercial throughout the process. Benefits from properly restructuring a business will ultimately bolster the covenant support available for the pension scheme.”

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