Use of independent covenant reviews jumps by 10%

The consultant’s statutory funding objectives valuations survey found 28pc of trustees had undertaken covenant reviews – compared to 18pc in the previous year.

Mercer said the increase was a direct result of guidance from The Pensions Regulator on funding defined benefit schemes.

Mercer principal Harry Sime said: "The industry appears to be progressing towards TPR’s objectives. There is clearly an increased understanding for the need for regular monitoring of covenant strength, funding and investment strategy.

"We believe that the number and frequency of reviews in these three key areas will continue to increase. The combination of higher targets, shorter recovery periods and more covenant reviews should help strengthen DB schemes’ funding and improve member security."

Of the schemes surveyed, 40pc had an active regular covenant monitoring regime in place. Some 23pc reviewed the covenant on an annual basis and 17pc reviewed it more frequently.

However, 15pc only reviewed the covenant at each triennial valuation. The survey also showed that the remaining 45pc of schemes did not actively monitor covenant.

The survey found schemes with UK based sponsors are more commonly carrying out independent covenant reviews, 34pc, than schemes with overseas sponsors 21pc.

However, 26pc of schemes with UK based sponsors and 38pc of schemes with overseas sponsors are still carrying out minimal or no covenant assessment.