On the go: Local Government Pension Scheme administering authorities and employers are to be given a host of new powers, as well as flexibility on exit payments, the government has announced.
In its second partial response to the review of employer contributions and flexibility on exit payments, the Ministry of Housing, Communities and Local Government has pledged to hand out powers to change employer contributions outside the usual valuation cycle, after a clear majority of respondents to its consultation argued the flexibility would assist them when coping with the fallout from coronavirus.
Included in the scope of regulatory change announced by the MHCLG are powers granted to employers to review contributions when there has been a significant change in their liabilities or covenant position, and the ability to request a review of contributions from their administering authority.
The government also sought to introduce greater flexibility on exit payments. The current system was introduced following a rule change in 2018, designed to allow employers to reclaim money from the scheme if they are able to show they have overpaid against the cost of buying out their liabilities with an insurer.
Speaking to Pensions Expert earlier this year, LCP partner Bart Huby explained: “The aim of this change was to remove the asymmetry that existed at the time, which meant that if an employer ceased participating in an LGPS fund when its section was in deficit, it had to pay off the deficit — but if there was a surplus, it gained no benefit.”
The government has pledged to create a new deferred employer status and deferred debt arrangement. In return for an ongoing commitment to meet their existing responsibilities as employers in the scheme, the government will “grant administering authorities the power to allow an exiting employer to defer the exit payment where they have no active members”.
“The exiting employer’s responsibilities under a DDA will be the same as for employers of active members but excluding the requirement to pay primary contributions,” the government’s response noted.
Commenting on the announcement, LCP stated in a bulletin that “this is welcome progress, but it’s still a long and winding road we’re on”.
It continued: “At present, some funds are willing to enter into DDA-style agreements, but others are not. The codifying of the approach into regulations should therefore bring some welcome clarity to employers and remove the current ‘postcode lottery’.
“However, we still wait to see what the regulations and guidance will actually say, and then the precise terms of spreading or DDAs will be set by administering authorities; so there may yet be considerable devil in the detail.”
