IAPF Spring 2018 Irish Pensions Magazine

38 | IRISH PENSIONS MAGAZINE | SPRING 2018 FEATURE put forward by Leo Varadkar, when he was Minister for Social Protection. That said, the experience gained from almost 13 years of assessing covenant and affordability may be of substantial interest when looking at potential contribution levels – for instance as part of a funding proposal or in relation to Section 50. It is obvious that a scheme’s relationship with its sponsor is hugely important. The ideal is for a free-flow of information between the employer and the trustees, allowing them to assess the strength of the corporate, where challenges to the funding of the scheme may arise and if there may be a way of finding alternative ways of ensuring benefits can be paid as they fall due. Even with full disclosure, addressing the affordability question is rarely a simple process. Any number of factors – e.g. a difficult relationship between scheme and sponsor, entrenched positions, little information being provided, unwillingness to provide funds etc. – add further complexity to the assessment of what an employer can afford to pay to close funding gaps. Whilst these issues may take time to develop, they can appear overnight if there is a change to the board. For instance, a long-standing executive who is a member of the its defined benefit pension scheme and sits at the heart of the UK’s ‘scheme funding regime’, influencing the level of prudence built in to the calculation of scheme liabilities and impacting investment strategy. The interaction between these three elements is a process that TPR has coined ‘integrated risk management’ (IRM). Where a deficit exists, there needs to be a sufficiently strong employer to stand behind the gap between current funding and the statutory funding objective. In cases where the employer covenant is not appropriately robust, trustees are expected to seek additional measures to gain comfort – further funding, wider group support, contingent assets, positive/negative pledges and the like. Wherever the covenant sits though, be that very weak, tremendously strong or somewhere in between, there is one question that is constant when the scheme is underfunded. It is a question that has relevance on both sides of the Irish Sea - what can the sponsor afford to pay? I recognise that UK and Irish arrangements differ in many ways and the concept of employer covenant is not enshrined within the current Irish system – despite it being