University calls for greater employer control within LGPS

Many local authority employers are obliged to offer staff membership of the Local Government Pension Scheme, but doing so can create a significant financial burden for the employer with little power to effect change within the scheme.

The University of East London is a member of the Barking & Dagenham Pension Fund. It employs around 500 non-academic staff who are entitled to join the LGPS, while academic staff are predominantly members of the Teachers’ Pension Scheme.

A representative of the university said the Barking & Dagenham fund presented a large and growing financial burden, and it had little control in how the scheme was run.

“Our contribution at the moment is in the region of 25 per cent [of salaries],” said Dusty Amroliwala, deputy vice-chancellor and chief operating officer at UEL.

“With the revaluation exercise, it’s going to go up in stages up to 2016 where it will be 28.2 per cent, so the burden is significant on the balance sheet.”

Amroliwala said while the scheme was 110 per cent funded in 2001, the deficit for Barking & Dagenham stood at £180m for 2012-2013, with the university's share standing at £61.7m. 

He added that despite contributing around £2m "hard cash" each year, the deficit continued to grow.

UEL was refused an application for voting rights on the pensions panel by Barking & Dagenham, which would have allowed it to vote on fund issues. The university was instead offered observer status. This was in contrast to the Avon Pension Fund, which allowed a representative from the University of the West of England a say on its pensions panel. 

“It would appear that the fund has the ability to allow us to sit on the panel,” added Amroliwala.

A spokesperson from Barking and Dagenham council said observers were given the chance to speak, and that their views were taken into account. The council's constitution document states voting members of the panel must comprise "the cabinet member for finance, plus five other councillors".

Last year, Bedfordshire Pension Fund offered academies within the fund "observer status" on its pension committee after the number of academies within the scheme's active membership increased dramatically.

UEL also created an investment strategy aimed at matching its own liabilities within the LGPS and reaching full funding within 20 years, but it was ultimately not accepted by the fund.

Fighting to control costs

The cost of pension benefits can have a significant effect on employers, experts said, especially those who are unable to raise money through taxes.

Mark Packham, public sector pensions leader at consultancy PwC, said universities are more subject to economic pressures and do not have the flexibility to raise taxes in order to increase revenues. “So an LGPS fund may ask them to pay off their deficit sooner," he added.

Packham pointed to a strengthening of the actuarial assumptions in the LGPS, adding: "It tends towards larger deficits but largely has been offset by strong returns on assets.”

He also said that while the switch from final salary to career average benefit accrual may lead to smaller deficits, tougher actuarial assumptions could lead to higher future service rates for schemes.

The university has carried out a number of measures in an effort to mitigate the cost of the scheme, including lobbying the government and creating a defined contribution arrangement for auto-enrolment.

The DC scheme includes a non-contributory default with a 10 per cent employer contribution. The university then matches every 1 per cent employee contribution with a further 1.5 per cent contribution, up to a total contribution of 20 per cent.

Steve Simkins, head of public sector pensions at consultancy KPMG, said that the lack of flexibility can cause frustration for LGPS members.

“Ideally they would like to have more control over what they pay, what their employers pay, what [employees] get and how their funds are invested,” he said. “It’s generally difficult to get this as things stand.

“The added constraint is that you can’t leave the scheme.”