Exit Credits In The Local Government Pension Scheme - Key Points To Note

• Published date: 29 June 2021
• Subject Matter: Finance and Banking, Employment and HR, Government, Public Sector, Financial Services, Fund Management/ REITs, Retirement, Superannuation & Pensions, Government Contracts, Procurement & PPP
• Law Firm: Gowling WLG
• Author: Mr Paul Carberry and Liz Wood

The High Court has considered an important case relating to retrospective amendments to the statutory exit credit mechanism in the Local Government Pension Scheme (LGPS),see R on the application of Enterprise Managed Service Ltd & Amey PLC and the Secretary of State for the Ministry of Housing, Communities and Local Government and others [2021] EWHC 1426 (27 May 2021, Queen's Bench division, Administrative Court).

The retrospective amendment was found by the High Court to be justified for reasons of public interest. The decision also provides helpful commentary on how the discretion to award an exit credit should be approached.

In this article, our pensions experts take a look at the case and discuss what employers exiting the LGPS need to know.

Key points to note for employers exiting the LGPS

1. Exit credits to exiting employers are not an automatic entitlement

A departing employer is not automatically entitled to a share of any scheme surplus on its exit from an LGPS fund in the form of an 'exit credit'.

Since 2018 the LGPS regulations provided for an automatic exit credit for employers leaving an LGPS fund where that fund was in surplus. These regulations were amended in 2020 with retrospective effect (to 2018) such that the exit credit was to be awarded at the discretion of the relevant administering authority rather than as an automatic entitlement.

The High Court has now established this retrospective removal of the right to an exit credit was permissible for reasons of public interest. In particular that, in some cases, the exit credit amounted to a windfall for certain departing employers who had in effect carried no pension risk during their period of admission to the LGPS.

2. Administering authorities still have discretion to pay an exit credit

An exit credit may still be payable on a discretionary basis.

The High Court decision provides helpful commentary on the considerations for the administering authority decision maker when exercising its discretion over the potential award of an exit credit. It will also be helpful to departing employers in clarifying the proper process that should be gone through when exit credits are under consideration.

Background

This decision relates to the introduction in 2018 of new regulations under which exit credits were automatically payable to exiting employers where the notional section of the LGPS fund attributable to the departing employer was in surplus. This resulted in administering authorities having to...