In past bulletins I have highlighted the lunacy of organisations in LGPS Funds being forced to continue to build pension liabilities beyond the point where they are affordable. Organisations are stuck, continuing to build more and more benefits for their staff, focussing contributions on new benefits rather than looking to pay down the legacy liabilities they’ve already built up.
Organisations have the Hobson’s choice of an unaffordable exit debt or continuing accrual driven by LGPS Regulations which are patently not fit for purpose.
At last there seems to be a glimmer of hope that the problem has finally been recognised and an acceptance that these Regulations need to be changed to better protect scheme employers as a whole, and indeed the Funds themselves.
In a previous Bulletin, I highlighted the work ICAS in Scotland had undertaken to encourage Scottish Government to review the Regulations and, as a result of this the Scottish Public Pension Agency communicated a commitment to review the Regulations and issue a consultation with their proposals. True to their word a consultation was issued on 6 November 2017 with a closing date of 15 January 2018.
The consultation proposes material changes to Regulation 62 (equivalent to Regulation 64 in England & Wales) which would allow ‘exiting employers’ to cease building up future benefits but without the imposition of a gilts based cessation debt, something which is unaffordable for most. This would be via the use of a ‘suspension notice’ where Funds could agree to let employers continue to participate, effectively on an ‘on-going’ basis, with a continuing contribution commitment to the Fund. Such an approach would assist in dealing with this ‘Hobson’s choice.’
I greatly welcome the SPPA’s approach although the detail still, in my view, needs some refinement.
ICAS has provided a response to the consultation which highlights some issues and makes further practical proposals how these may be resolved.
I can only hope that the proposals are implemented (with some pragmatic amendments) and that England, Wales and Northern Ireland look to follow suit. It can only be in everyone’s interests.