DB pension funding and corporate finance: Pension indemnity assurance and corporate covenant capitalisation

Abstract

This paper is concerned with the financing of companies and funding of employment-based defined benefit (DB) pension schemes and takes the viewpoint of a UK-based financial analyst, while abstracting from certain institutional detail of minor relevance. This view carries with it consequence for the design of work-based pension regulation, and the implications of that in the broader economic context. It draws extensively on analysis conducted in the research and development activities of BrightonRock Group. In particular, it illustrates the use of optimally designed pension indemnity assurance to maintain complete member security while, through capitalising the sponsor covenant, reducing the costs and risks of DB pension provision to a sponsor.