The ponderous pace of LGPS change

David Davison

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Nearly three years ago I wrote an article praising Lothian Pension Fund in Edinburgh for an enlightened move they announced which protected organisations burdened with legacy LGPS debt. This is a huge problem, as outlined in a previous Bulletin, which unreasonable saddles admitted bodies with past Council liabilities without full compensation and usually without them even being aware. The process adopted is akin to someone buying a car but having to pay for the previous owners lease as well as your own!!

The logical and reasonable approach that Lothian Pension Fund took was to confirm that where participation in their Fund had effectively come about via an outsource from a local government entity that on exit from the Fund the exit debt would be calculated on an on-going basis rather than the much more penal cessation basis and I have been fortunate to witness a number of my 3rd sector clients benefit greatly from this wholly sensible change. Some of these issues are dealt with via transferee admission agreements but not all with many legacy arrangements still in place.

What however has surprised me is that other Funds have steadfastly refused to follow suit, a position highlight by four recent exercises I have been undertaking where all the organisations hold very significant amounts of legacy Council benefits under their membership.

How can it be reasonable for an individual to work for 35 years for the Council and then move to a small 3rd sector organisation with LGPS membership for a couple of years prior to retirement and for that small organisation to inherit the past liability in full. Patently it can’t be!

The Lothian approach recognised this and provided a clear policy statement so that everyone knew exactly where they stood.

Unfortunately, while hugely welcome, even Lothian’s approach doesn’t go quite far enough. I struggle to see the difference between members who transferred across at outset (which the policy covers) and those who transfer across at a later date (who aren’t covered). The historic liability is the same. Indeed the policy also doesn’t reflect transitions from other public sector employers and schemes which results in a similar inequity.

Scottish Government missed a huge opportunity to resolve this issue when they introduced their new 2018 LGPS Regulations but unfortunately it was absent from the revisions. This is an area which could have benefited from some prescription and a clear policy statement that it is unreasonable for public bodies to expect other organisations to pick up their liabilities and that any such liabilities should be excluded in the calculation of contributions and in the settlement of any cessation liability.

With the findings of the Tier 3 review due shortly to the England & Wales Scheme Advisory Board it is to be hoped that they will deal with the issue. In the meantime Funds have the opportunity to behave fairly and responsibly and deal with their own liabilities in full.

David Davison

Post by David Davison

Specialist consultant on pensions strategy for corporate, public sector and not for profit employers

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