Quantum Advisory provides alternative support via sponsor with weak covenant
The scheme sponsor’s covenant was very weak and the deficit had increased significantly since the last valuation as a result of increasing the prudence of the Technical Provisions to reflect the covenant decline. The scheme was 100% invested in equities and had a significant proportion of liabilities in respect of deferred members.
It quickly became clear that it would not be possible for the sponsor to pay the required level of deficit contributions to maintain the existing Recovery Plan end date. Whilst it would have been possible for advisers on both sides to have protracted negotiations in respect of the assumptions with the likely outcome of reaching a middle-ground on which nobody felt comfortable, we advised the Trustees to focus on seeking alternative forms of security.
Based on a detailed analysis of the scheme’s liabilities, it was agreed that an Enhanced Transfer Value exercise would be carried out, with the cash which had been earmarked as deficit contributions being used to pay top-ups to members’ transfer values.
Conclusion
The exercise was an overwhelming success, effectively halving the funding deficit and enabling the Trustees to significantly de-risk the investment strategy without requiring additional contributions or a lengthening of the Recovery Plan.