On 8 May 2019, the Ministry of Housing, Communities and Local Government published a consultation regarding changes to the Local Government Pension Scheme (LGPS). The changes are outlined below.

Deferring exit payments

As the LGPS rules currently stand, in a business restructure where the last member of the LGPS transfers from one business to another, an exit payment will usually be triggered and must be paid by the transferring business. The consultation document looks to address the burden this imposes during group restructuring and seeks to “transport” the pension to the new employer so that no exit payment is triggered.

This will occur, so the consultation outlines, in a “takeover” and “merger” situation, but rather inconveniently, the consultation does not define the parameters of these terms. This, therefore, may apply in insolvency situations and so, as ever, our advice would be to carry out your due diligence carefully and ensure you understand the business you are taking over, warts and all!

Exit credits – are they fair?

Since May 2018, employers with employees in the LGPS who are in surplus when a leaving valuation is made are paid an “exit credit”. Increasingly, however, contracting authorities are sharing the risks of participation in the LGPS with service providers. This could see service providers taking little risk but receiving an exit credit, even though the costs of participation in the LGPS have been under-written by the contracting authority. With that in mind, this consultation looks to redress that by proposing that no exit credit be awarded in that situation.

Scheme valuations

Finally, the consultation document looks to amend the valuation cycle from its current three-year period to four years (in line with other public sector schemes). In addition, LGPS funds will be able to undertake interim valuations to enable them to take action between valuations, and it will permit administering authorities to amend employers’ contribution rates in-between valuations. This will give some welcome flexibility when pensions are being buffeted by the waves of economic stress and unfavourable court decisions (as above!).

Further information

For more information, please contact Doug Mullen.