Under most construction contracts, the contractor takes on the ground conditions risk. However, a recent case has demonstrated that the risk can fall on the employer.
This should mean that academies are seen as lower risk by LGPS administering authorities and that employer pension contributions into the LGPS for academies should not be significantly different to those paid by the local authority before conversion. Academies should therefore consider approaching LGPS administering authorities to see if their contribution rate should be reviewed.
On 2 July 2013 the Secretary of State for Education, Michael Gove, made a written ministerial statement as well as a parliamentary minute about academies’ employer contributions under the Local Government Pension Scheme (LGPS).
In summary, the statement said that the Department for Education (DfE) has agreed to provide a guarantee that it will meet any outstanding liabilities under the LGPS if an academy were to close. As academies no longer have the financial backing of the local authority, LGPS administering authorities have stated that academies are viewed as higher risk. This has meant that in some cases the administering authorities are looking to recover deficits in the funding of benefits over the course of seven years rather than 20 years. As a result, many academies are paying significantly higher LGPS employer contributions than they did as local authority maintained schools. Academies are required to offer membership of the LGPS to non-teaching members of staff.
This new guarantee by the DfE means that in the event of the closure of an academy, any remaining outstanding LGPS deficit not met by the academy’s assets on closure will be met by the DfE in full. The guarantee should ensure that for schools converting to academies, LGPS employer contributions should not be significantly different following conversion.
This guarantee was due to come into effect on 18 July 2013. Following its introduction, the DfE expects LGPS administering authorities to review risk assessments for Academies. This could result in the level of employer contribution rates being reduced for those academies who are paying a deficit contribution for past benefits calculated over a shorter timescale. If you are concerned that such a review has not been carried out, you should contact the relevant LGPS administering authority.
In addition to the DfE guarantee, the Department for Communities and Local Government (DCLG) will also be launching a consultation on proposals to amend the Local Government Pension Scheme Regulations to require administering authorities to treat academies as if they were still part of the local authority for the purposes of calculating employer pension contribution rates, if they wish to do so. This might mean that for some academies that their contribution rate would be lower as a result, although for others it might mean a higher contribution rate. This will depend on the profile of school’s employees who are in the LGPS. Where employees predominantly have longer service, are older and female, then it’s likely that contribution rates will be higher by comparison with the local authority rate. Where employees predominantly have lower service, are younger and male, then contribution rates are likely to be lower. This is because women tend to be paid pensions for longer than men and because the way in which pension costs in the LGPS are allocated tends to mean that greater costs are payable as the employee grows older and acquires more service.
For more information
For more information on this issue, the LGPS generally or other legal issues for academies, please contact Doug Mullen on 0121 212 7432, firstname.lastname@example.org, or James Monk on 0121 212 3529, email@example.com.
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