A wide variety of contingent assets can be used to improve the security of scheme benefits.
The most common contingent assets are parent company guarantees or charges over assets but escrow accounts and letters of credit may also be used.
Contingent assets can also potentially reduce the costs of pension contributions and Pension Protection Fund levies.

These can lead to the immediate improvement in the scheme’s funding position.
However, disadvantages for the employer include the cash flow impact on the company and the problem of “trapped” cash which be difficult to return due to legal restrictions on surplus return.
Cash contributions may affect existing covenants or restrictions under the company’s borrowing arrangements so it is important that these are carefully checked.
It may be necessary to get the lender's consent before making a cash payment over a certain amount.

An escrow arrangement may potentially breach relevant covenants, for example, under the employer's borrowing arrangements.
The trigger events for paying escrow account monies into the scheme will need to be considered and negotiated.
At the end of the period for which the escrow is provided, the account balance will often be repaid to the company, for example, if the scheme reaches a specified funding level.

These are a very common form of contingent asset.
The employer should consider whether it has a strong parent company that could make payments to the trustees if trigger events occur.
Advantages of a guarantee for the employer include a low cash flow impact and minimal set-up costs.
Disadvantages for the parent company guarantor include reduced borrowing capacity and the impact on existing investors.
The parent company may also be in breach of any banking covenants by giving a guarantee.
The trigger events under the guarantee and the length of the guarantee will need to be considered and negotiated.
For the Pension Protection Fund to recognise the guarantee (qualifying the employer for a levy reduction) it must be in the PPF’s standard form and meet certain conditions.

The employer will need a suitable unencumbered asset, for example, real estate, that it is willing to charge.
Giving a charge over the asset may breach covenants or restrictions under its borrowing arrangements.
The disadvantages of encumbering the asset include reduced borrowing capacity or increased borrowing costs in future.
The trigger events under the charge arrangement will need to be considered and negotiated.
For the Pension Protection Fund to recognise the charge (qualifying the employer for a levy reduction) it must be in the PPF’s standard form and meet certain conditions.

If the employer already has a facility established with its bank a letter of credit could be a reasonably low-cost and straightforward option.
If not, the bank would need to set up counter-indemnity arrangements and this process can be time-consuming and expensive.
The advantages for the employer of a letter of credit include the possibility of lower contributions to the scheme and a low cash-flow impact.
Disadvantages for the employer may include reduced borrowing capacity or increased borrowing costs in future and the impact on the employer's credit rating.
Letters of credit are usually short-term but renewable.
The trigger events under the letter of credit will need to be considered and negotiated.
For the Pension Protection Fund to recognise the letter of credit (qualifying the employer for a levy reduction) it must be in the PPF’s standard form and meet certain conditions.