Facing facts IN a workmanlike document that is a vast improvement on previous annual reports, Liz Airey, who was appointed chairman of the board of trustees a year ago, sets the scene for the current situation. She says: “Behind the familiar headlines about the ‘credit crunch’, the financial markets have been going through very difficult times. Almost every type of asset fell in value over the tax year which, in turn, led to much lower funding levels in most UK pension schemes, including the Unilever UK Pension Fund.” Liz Airey continues: “If we look at the top FTSE 100 companies as an example – their pension schemes began the year with a joint surplus of £21 billion, then ended it with a combined shortfall of £51 billion (using the IAS 19 accounting measure). The fact that the funding shortfall has increased despite significant contributions from Unilever towards making it up (£230 million in 2007 and £110 million in 2009) shows how difficult the economic climate has been.” The scheme is a ‘mature’ one with a small number of active members compared to pensioner and deferred members. Because of this, Liz Airey said, the trustees were working with Unilever as sponsor of the fund to ensure it had the most appropriate investment strategy to optimise returns while controlling the risk of further funding shortfalls. She added that, in determining any action, the trustees were mindful that the current economic environment was very unusual and there were very divergent views on how it would develop before adding: “We believe Unilever provides a strong underlying ‘employer covenant’ for the Fund.” ‘Employer covenant’ is a pensions term for describing a company’s financial strength and prospects, as well as its willingness to continue to support the pension scheme. It is a vital role because the sponsor effectively underwrites the risks to which a scheme is exposed, including insufficient funds to meet all its obligations, members living longer, under-performing investments and the effects of inflation.