31 March 2022 marked the end of the latest triennial cycle and the valuation date in the Local Government Pension Scheme (LGPS).
Whilst valuation results won’t be received by admitted employers until later this year, it is expected that employer contribution rates will rise again. For a number of years, there has been a trend of employers closing their defined benefit pension schemes due to rising costs and to achieve parity of treatment within workforces.
But what do you need to consider before doing so?
Contractual commitments
These can come in two forms. Many employers became admitted to the LGPS as a result of a stock transfer from a Local Authority, to ensure the continued participation of transferring employees. Some agreements oblige the employer to maintain access to the LGPS for the transferred staff. Legal advice should be taken on any such provision before a decision is taken to cease future accrual.
In addition, participating employees can have individual contractual rights to participate in the LGPS. For this reason, contracts of employment of members should be reviewed and a strategy designed for implementing contractual variations where necessary.
Consultation
As a statutory scheme, closure of the LGPS to future accrual is not a change that requires consultation under the pension consultation regulations, however it is generally treated in the same way. As such, most employers will carry out a period of consultation with employees before making a decision to close the scheme, and proceeding to implement this. If any required contractual variations are proposed to be implemented via dismissal and reengagement (for 20 or more employees), a period of collective consultation will also need to be factored into the process and timetable.
Can you afford the debt?
On the last active member leaving, an Administering Authority will carry out a valuation and issue a certificate showing any exit payment due. The default under the LGPS Regulations 2013 is that the debt will be paid immediately but this is often not desirable for the exiting employer. The legislation was amended in September 2020 to provide options for admitted employers to either defer their debt via a deferred debt arrangement or spread their debt via a debt spreading agreement. As each LGPS Fund is administered separately, the options for admitted employers will be at the discretion of each LGPS Fund but most set out their general approach in their funding strategy statement so this can be a good starting point. However, admitted employers would be advised to commence discussions on their options at an early stage if their ability to exit the LGPS relies upon agreeing either to defer or spread their debt.
For further information or advice on the LGPS please contact Jane Bowen, Solicitor in our Employment Team.
