On the go: Local authorities will have “absolute discretion” in determining the amount of any exit credit payment due to employers in the Local Government Pension Scheme, the government has said.
In a consultation response published on Thursday, the Ministry of Housing, Communities and Local Government stated that it is also extending the period in which an exit credit is due, to six months from the current three months.
In 2018, the government made changes to LGPS regulations to allow employers to reclaim money from the scheme, if they can show they have overpaid against the cost of buying out their portion of liabilities with an insurer.
Known as exit credits and introduced in May last year, the payments were implemented to reconcile an imbalance where employers would be liable for any exit payment if they were in deficit and wanted to leave the scheme, but could not retrieve any overpayments. As a result, many employers proved reluctant to fully fund their obligations.
However, the new rules created problems where local authorities had outsourced functions to private contractors but protected them from having to pay contributions above an agreed level, repair deficits or pay exit fees in exchange for a better price – known as ‘pass-through’ arrangements.
This means some companies could claim payouts from the LGPS, despite having borne none of the risk associated with funding the scheme.
Aware of this situation, the government included a chapter on this issue in a consultation that closed in July 2019, and has now published its response to this specific topic.
The new regulations, which will be laid before parliament at the earliest opportunity, also clarify that any exit credits that have not been paid – even if overdue – shall only be due following the administration authority’s exercising of its discretion.
The consultation response also stated that local authorities should adopt a fair and reasonable exit credits policy, which should be set out in their funding strategy statement.
“The policy should aim to protect the interests of the members and employers as a whole and look wider than the interests of the single employer in question,” it stated.
“Administering authorities should also seek actuarial and legal advice where appropriate and act consistently with the approach set out in their funding strategy statement.”
