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LPFA implements new risk-based approach to contributions

The London Pensions Fund Authority (LPFA) has developed a new risk-based approach for setting employer contribution rates, which uses different discounts dependent upon the credit risk posed by the scheme employer.

Working in collaboration with Eversheds, the LPFA is now able to offer this service to other pension funds.
Covenant Checks – an assessment of the strength and reliability of the employers in a fund – aims to provide peace of mind by taking a regular, independent and objective view of the financial strength of fund employers.
Covenant Checks can help to identify the measures required to mitigate the risk of employers not being able to meet pension liabilities in the future. This prevents those pension liabilities then falling on other, solvent employers or the local authority.
Tony Williams, employer services manager of the LPFA, says: “The partnership with Eversheds has created an expert staff body, experienced in conducting Covenant Checks for over 170 fund employers. With a proven track record of identifying those most at risk, we have developed a process for monitoring and reporting to boards and pension committees on a regular basis, providing fund members with the risk assurances that they require.”
Susan Martin, CEO of the LPFA, says: “As an innovative international centre of excellence in pension management, the LPFA is committed to developing best practice risk mitigation strategies throughout the industry. By using Covenant Checks, we are able to minimise fund risk within our network, directly protecting the interests and financial wellbeing of all scheme members.”

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