Sponsor covenants in risk-based capital

With a second European Union consultation on moving pension fund capital requirements on to a more market-consistent, risk-based capital framework, many have been alarmed at the idea of heavy Solvency II-style requirements for retirement schemes. But incorporating covenant agreements as an embedded option on a fund’s liabilities can reduce the capital burden. By Malcolm Kemp

At the time of writing, the European Insurance and Occupational Pensions Authority (Eiopa) has begun a second consultation on introducing a single harmonised regulatory capital framework for occupational pension schemes across different European Union (EU) member states. One possibility being considered is a market-consistent risk-sensitive regulatory framework akin to the Solvency II framework for EU insurers due to come into force in January 2014. This has been greeted with alarm by some who