Trying to leave the LGPS? Breaking up is hard to do…

Posted by Gillian McCue on
For many charitable and other bodies offering staff membership of the Local Government Pension Scheme (LGPS) as a result of local authority outsourcing, there has been a concern with how  past-service liabilities have been transferred to them, due to the LGPS’ inability to segregate service between employers. 

This issue becomes very real when charities and other not-for-profit organisations seek to manage their increasing pension liabilities by leaving the LGPS, thereby triggering a cessation debt under LGPS regulations.  To date, the LGPS has failed to recognise the disproportionate impact of the issue on charities – members of the public donate for charitable causes not public-service pensions. 

In an encouraging change of practice by the Lothian Pension Fund, things are changing. This will be welcome news for many LGPS employers.

A report called “Deficit management in the LGPS” was published by PwC on 3 July 2015.  It was commissioned by the Scheme Advisory Board for local pension schemes – a body which helps local government establish how schemes should be run.  The report concludes that the current cessation basis is too strong and should be more reflective of what is happening in the wider market.  It recommends a move from valuing exit debts based on gilt yields to measuring them using the Consumer Price Index saying this would “remove the perceived unfairness that certain LGPS employers are exposed to prevailing market conditions at key events”. The report also says that in some circumstances it can be in the interests of a fund to “allow an employer to exit with weaker terms”.

Following this report, the Lothian Pension Fund within the LGPS consulted with all of its employers on the following proposed change to its funding strategy.  Cessation from the LGPS to be on the ongoing basis for those employers admitted to Lothian Pension Fund as a direct result of the transfer of staff from another Fund employer.  The consultation closed at the end of September 2015.  The outcome is yet to be published.  However, if the change is adopted it will pave the way for other pension schemes to treat cessation employers in the same way, making it easier for employers across the country to leave the LGPS.

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Gillian is a Senior Associate specialising in pensions and benefits advising on all employer and trustee pension scheme responsibilities.

Gillian McCue
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