Schemes managers tell trustees to get expert advice on covenants

An exclusive survey by Professional Pensions shows that 57pc of scheme managers believe trustees do not have the competence or resources to carry out the task.

However 36pc of PP's panel of 100 top scheme managers said trustees should carry out their own assessment and 7pc said they were unsure.

One manager said: "It depends. For listed companies for example there is plenty of information out there - including rating agency reports, analysts reports and even the share price itself - and I do not believe that this can be bettered at a reasonable cost. For a private company this is not the case at all."

Another agreed: "If the trustees have access to sufficient data - such as at a public limited company - and they have the competence to make appropriate judgements then they should do it themselves.

"Otherwise they would need professional input."

However, others disagreed. One said: "Neither approach in isolation works, both internal and external input is required."

Last month, Linklaters partner and former Association of Pensions Lawyers chairman Tim Cox said trustees were being encouraged to hire advisers and accountants to assess sponsors but could often do the work themselves.

He said: "A lot of companies - particularly public companies or listed companies - have an awful lot of information available of their website.

"If you have people who are able to look at that information and form a conclusion - and one would hope in this day and age that trustees would have at least one person on the board who could make a reasonable stab at that - there is no particular reason why you should pay somebody else to look at the same information."

But Gazelle Pensions Advisory managing director Paul Thornton - who recently carried out a review of pension institutions for the department for work and pensions - warned the suggestion was fraught with danger.

He said: "It is rather like not bothering with a survey on the house you are buying because you know a bit of DIY. You might be all right or you might not."

"Would you want your pension looked after by trustees who think it is okay to just 'make a reasonable stab' at looking at the company information on their website to decide if the covenant is strong enough?"

Thornton said trustees who were members of management might know the business well, but that intelligence could leave them struggling to balance conflicts of interests.

He added: "A well-rated parent company does not ensure a strong covenant for the particular subsidiary that happens to be the principal employer of the pension scheme, but it is the principal employer on which the trustees have to rely.

"Corporate structures usually involve debts to lenders secured on company assets; a failure to get to the bottom of the security structure could be disastrous.

"As with most things in life you get what you pay for. The real waste of money is a covenant assessment which does not include clear advice and recommendations, or even worse, treating financial advice on the sponsor covenant as a box-ticking exercise."

The panel is:

Aberdeen City Council Pension Fund - Gail Lindsay
Accenture Pension Plan - Yvonne Pearce
Akzo Nobel (CPS) Pension Scheme - Matthew Trueblood
Alliance and Leicester Pension Scheme - Robert Tyrrell
AMEC Staff Pension Scheme - Garry Lloyd
Arcadia Group Scheme & Senior Executives Scheme - Jayne Cookson
Associated British Foods Pension Scheme - Derek Yarrow
AstraZeneca Pension Fund - Nicki Mortimer
Aviva Staff Pension Scheme - Karen Jones
Axa Group Pension Scheme - David Oversby Powell
BAA Pension Scheme - Eric Hunt
Bedfordshire County Council Pension Fund - Geoff Reader
Berkshire Pension Fund - Nick Greenwood
BMW (UK) Operations Pension Scheme - Chris Wood
BOC Pension Scheme & BOC Retirement Savings Plan - Stephen Pegg
Britannia Building Society Pension Scheme - John Rogers
British Alcan Aluminium Retirement Income & Life Plan - David Jordan
British Energy Group Pension Scheme - Graeme Robertson
BT Pension Scheme & Retirement Plan - Kevin O’Boyle
Cable and Wireless Superannuation Fund - Peter Hampton
Cadbury Schweppes Pension Fund - John Hatchett
Cambridgeshire County Council Pension Fund - Allison Kew
Cardiff County Council Cardiff & Vale of Glamorgan Fund - Richard Bettley
Chevron Texaco UK Pension Plan - Ashley Saunders
Compass Group - Paul Lambert
Co-operative Group Pension Fund - Alan Murphy
Cornwall County Council Pension Fund - Calvin Matthews
Deutsche AM (UK) Scheme and Senior Group Scheme - Wayne Jury
Diamond Trading Company - Shola Salako
Dundee City Council Tayside Superannuation Funds - Sandy Flight
Durham County Council Superannuation Fund - Nick Orton
E. ON UK Electricity Supply Scheme & M.E. Scheme - Adrian Harris
EDF Energy Electricity Supply Pension Scheme - Ian Baines
Electricity Supply Pension Scheme - Richard Barlow
Essex County Council Pension Fund - Martin Quinn
Exel Retirement Plan - Ann Harrison
Fenner Pension Scheme - David Sykes
First Group Pension Schemes - Ian Robertson
Greater Manchester Pension Fund - Peter Morris
Halifax Retirement Fund - Robert Burnett
Hampshire County Council Pension Fund - Dave Wilson
Hertfordshire County Council Pension Fund - Nicola Webb
IMI Pension Fund - Peter Flanagan
Invensys Pension Schemes - Nigel Casson
John Lewis Partnership Pension Trust - Mervyn Harvey
Kingfisher Pension Scheme and Retirement Trust - Colin Hately
Kodak Pension Plan - Alan Watson
Lafarge UK Pension Plan - Paul Siggers
Land Rover Pension Scheme - Graham Squires
Legal & General Group UK Pension + Assurance Fund - Lisa Shufflebottom
Leicestershire County Council Pension Fund - Gary Featherstone
Liverpool Victoria Friendly Society Staff Pension Scheme - Mike Acred
London Borough of Lewisham Superannuation Fund - Mike Dobson
London Pensions Fund Authority - Mike Allen
Marks & Spencer Pension Scheme - Lynn Collins
Merchant Navy Officers Pension Fund - Linda Corbett
Middlesbrough Teesside Pension Fund - Mike Hopwood
Nestle (UK) Pension Fund - Julie Richards
Network Rail Pension Scheme - Chris Hannon
Nortel Networks UK Pension Plan - Louise Hammond
Northern Foods Pension Scheme - Peter Croskin
Northumberland County Council Pension Fund - Kevin Gregson
Pearl Group Pension Scheme - Denise Bellinger
Philips Pension Fund - Adrian Holmes
Plumbing and Mechanical Services Industry Scheme - Robert Burgon
Prudential Staff Pension Scheme - Andrew Parncutt
Railways Pension Scheme - Michael Goy
Reckitt Benckiser Pension Fund - Tim Wood
Rexam Pension Plan - Paul Reynolds
Rolls Royce Pension Schemes - John Champion
Royal Bank of Scotland Group Pension Fund - Peter Hurcombe
Scottish & Southern Energy Hydro-Electric Scheme - Martin MacKenzie
Scottish Power Pensions Scheme - Paul Mulhern
Scottish Widows’ Retirement Benefit Scheme - Rod Cummins
Sears Retail Pension Scheme - Gary Branston
Staffordshire County Council Pension Fund - Melanie Stokes
Standard Chartered Pension Fund & Retirement Scheme - Mark Fox
Standard Life Assurance Co. Staff Pension Fund - Brian Beveridge
Strathclyde Pension Fund - Richard McIndoe
The Environment Agency Pensions Active and Closed Funds - Howard Pearce
The Pensions Trust - Karen Parry
The Shipbuilding Industries Pension Scheme - Elaine Darroch
The Weir Group - Barbara Mungall
Thorn Pension Fund - Keith Rayner
Torfaen Pension Fund - Graeme Russell
Total UK Pension Plan - Lester Farrant
Tyne & Wear Pension Fund - Stephen Moore
Unilever UK Pension Fund - Nigel Biggs
Uniq - Helen Whitbread
Vauxhall Motors Pension Plan - Andrew McGaw
Warwickshire Pension Fund - Phil Triggs
West Midlands Pension Fund - Mike Woodall
Western Power Distribution Pension Scheme - Paul Martin
WH Smith Pension Funds - Martin Ashford
Willis Group Services Willis Pension Scheme - Richard Bostock
Wm Morrisons Penson Scheme - Graham Sutch
Woolworths Group Pensions Scheme - Elisabeth Browning
Worcestershire Country Council Pension Fund - Richard Peregrine
WS Atkins Staff Retirement Benefits Plan - Kevin Geeves