Partial response to LGPS – update on the exit credit system
The background
On 8 May 2019, the Government opened its consultation on changes to the Local Government Pension Scheme Regulations 2013 (“the Regulations”) to allow greater flexibility in the treatment of pension liabilities of departing employers. A partial response to that consultation in relation to the proposal for the changes to the rules on “exit credits” has now been published
Consultation and response
Since 14 May 2018, the exit credit system provided that where the last active member of an admitted employer leaves the LGPS, an exit credit may be payable if an actuarial assessment shows that the employer is in surplus on a full buy-out basis at the time of their exit. The consultation proposed changes to the exit credit system to avoid a situation where some admitted employers were becoming entitled to exit credits in circumstances where contracting authorities had shared pension risks with them by entering into side agreements for example by capping contributions or picking up the risk of an exit payment arising at the end of the contract.
The consultation proposed changes so that Administering Authorities must take into account the level of risk that an admitted employer has borne in determining the amount of exit credit payable. The proposal was relatively supported, and based on representations received, the Government has confirmed the following:
- The Regulations will be amended so that:
- Administering authorities may determine, at their absolute discretion, the amount of any exit credit payment due, having regard to any relevant considerations. Where due, exit credits must now be paid in six months;
- Unpaid exit credits will only be due following determination by the Administering Authority.
- While Administering Authorities will be required to take into account the parties’ representations, they will not be obliged to enquire into the precise risk-sharing arrangements adopted;
- The appeals and adjudications process contained in the Regulations will apply in the event of any dispute or disagreement of any exit credit paid and the Pension Ombudsman will have jurisdiction to hear any complaints of maladministration;
- Administering authorities will be required to adopt a fair and reasonable exit credit policy and set this out in their Funding Strategy Statement.
It is not clear when these amendments will be made but the response states that regulations giving effect to these proposals will be laid before Parliament “at the earliest opportunity”.
A response to the outstanding proposals which include proposals for flexibility on exit payments and proposals for changes to the employers required to offer local government pension scheme membership will be published in due course.
How can we help?
If you’d like any information or advice on how this decision may affect you, then please contact a member our Employment and Pensions Team or call 0207 880 4263.
