New Funding And Exit Flexibilities For Local Government Pension Scheme Employers

Published date17 March 2021
Law FirmGowling WLG
AuthorMr Paul Carberry and Hannah Beacham

The Ministry of Housing, Communities and Local Government (MHCLG) and the Scheme Advisory Board of the Local Government Pension Scheme (SAB) have both issued new guidance that will assist employers in managing their ongoing LGPS liabilities and the costs triggered on exit.

Since September 2020, the legal framework has been in place to provide additional flexibilities in relation to payments due when LGPS employers leave the scheme or their circumstances change. But for the flexibilities to be used, funds must have appropriate policies in their funding strategy statements on how the debts of departing employers are dealt with and how ongoing contributions are assessed.

The March guidance will enable funds to update their statements and facilitate the implementation of the funding flexibilities.

Read the MHCLG March guidance and SAB guidance. Our Pensions team summarises the new guidance and what this means for LGPS employers below.

1. New guidance was issued in March 2021

'The MHCLG and the SAB issued the new guidance to support administering authorities of LGPS funds (administering authorities) when updating their funding strategy statements to permit the practical application of the funding flexibilities on offer since September 2020 when employers depart the LGPS or their circumstances change.

2. Is a 'deferred debt agreement' now an option in the LGPS?

Yes, administering authorities can agree to a departing employer deferring an exit payment to the fund by using a 'deferred debt agreement'.

3. Can an employer leaving the LGPS spread the cost of an exit debt?

'Yes, administering authorities now have the ability to recover a departing employer's exit payment over an agreed period of time, rather than as a single payment upon exit.

4. Can contributions to the LGPS be changed between valuations?

'Yes, administering authorities can now revise the contribution rates payable by LGPS employers between valuations.

5. But do any of the above require appropriate policies to be in place?

'Yes, administering authorities must set out their policies on these new flexibilities in their funding strategy statements before they can operate them in practice. The new guidance is meant to facilitate the updating of funding strategy statements and is therefore expected to be helpful in the implementation of the funding flexibilities.

Background to the flexibilities

In September 2020, regulations introduced new funding flexibilities into the LGPS expressly allowing administering authorities to review employer contributions, spread exit payments due from departing employers and establish deferred debt agreements. For more information on this, read our alert 'Can't pay.....right now! Flexibility for employer debts in the LGPS (24 September 2021)' However, before an administering authority can implement any of the flexibilities, their funding strategy statement must contain appropriate policies on the operation of those flexibilities so as to ensure consistency and transparency.

New guidance from MHCLG and LGPS SAB

On 2 March 2021, both MHCLG and the SAB issued their respective guidance notes (guidance) relating to:

  • deferred debt agreements;
  • spreading employer exit payments and
  • amending employer contributions between valuations.

Given the number and range of employers in the LGPS, it is inevitable that many of their financial circumstances will...

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