Local Government Pension Scheme Regulations

Background

The Department for Communities and Local Government (“DCLG”) is consulting on changes to the Local Government Pension Scheme Regulations 2013 (“the 2013 Regulations”) and the Local Government Pension Scheme (Transitional Provisions, Savings and Amendment) Regulations 2014 (“the Transitional Regulations”), primarily to implement the new (2013) Fair Deal guidance for pensions on outsourcing contracts.

The changes are made via the new Local Government Pension Scheme (Amendment) Regulations 2016 (“the Amending Regulations”).

Respondent information

Sackers is the UK’s leading law firm for pension scheme trustees, employers and providers. As a specialist practice working exclusively in the pensions industry, everything the firm does is geared towards advising clients in relation to pensions.

Sackers advises over 500 occupational pension schemes across all industry sectors and across all sizes and structures. Around 75% of the firm’s appointments are as advisers to trustees and Sackers acts for more of the UK’s top 100 pension funds than any other law firm. Sackers retains key scheme sponsor appointments too, both on an ongoing and project basis.

The views expressed in Sackers’ response to this consultation have been collated following discussions with some of the firm’s solicitors.

Comments

One of the stated aims of the proposed changes made by the Amending Regulations is ensuring that local government and participating employers in the Local Government Pension Scheme (“LGPS”) provide the appropriate level of pension provision as set out in the new Fair Deal guidance.

The new Fair Deal requires that contractors provide public-sector pensions for transferring employees on public-sector outsourcings, but currently excludes transfers from local authorities affecting the LGPS which are covered by the Best Value Authorities Staff Transfers (Pensions) Direction 2007 (this gives statutory force to some of the Fair Deal principles).

The proposal is that the 2013 Regulations are amended to permit all transferring members to remain in the LGPS. The Amending Regulations create a system of “protected transferees” and “protected transferee employers”.

Admitted body status framework

The consultation states that the draft Amending Regulations “build on admitted body status”, with independent service providers obliged to enter into an admission agreement for participation in the LGPS. It asks that, “if there are better ways to adopt the reformed Fair Deal in local government”, respondents recommend an alternative approach and say why they consider this to be preferable.

In our view, continuing to build on the admitted body status framework is sensible as there is a degree of familiarity with this process among bidders, and existing legislation and documentation (e.g. admission agreements) in place which serve as a foundation to build on.

First generation outsourcings and retenders

There are principally two areas in relation to the proposals where we have comments.

The provisions on re-tenders appear to be less protective than the existing position.

The draft Amending Regulations do not include a requirement that, at re-tender, a formerly transferred member becomes a protected transferee member and the successful bidder becomes a protected transferee employer. This appears to offer less protection to members than the 2007 Best Value Pension Direction where it is a requirement for the incumbent or any other bidder to provide admission to the LGPS or a broadly comparable scheme. The Amending Regulations appear to convert this requirement to an option. The underlying concern may be the practical difficulty of legislating for a compulsory bulk transfer of accrued rights from a broadly comparable scheme but it does create a “gap” in the level of protection where one did not previously exist.

Conversely, the level of protection for “protected transferees” on a first generation outsourcing goes further than the current position which contractors will be familiar with. In particular, it is proposed that the protection extends not just to employees of local authorities but also employees of admission bodies. This means that if an admission body takes on new staff to work alongside the original transferred staff and these new staff are admitted to the LGPS, these will also be protected on a second generation transfer. The policy intention behind this is not clear given that such staff did not originate from the public sector (and the change from the current policy) this should be more fully explained.

Administrative changes and flexibilities

The Amending Regulations also include a number of other changes intended to improve the administration of the LGPS and the options available to members – solving some administrative problems with the 2013 Regulations, and making additional provisions in relation to AVCs and early retirement pensions in response to Freedom and Choice.

We would agree that these are prudent aims, and that the changes consistent with DC flexibilities and AVCs are particularly welcome.

Return of surplus

The Amending Regulations propose that a refund of any surplus should be permitted to be paid to an employer when it ceases to participate in the LGPS.

In our opinion, the introduction of the ability to return surplus would be useful. We believe this would make bodies more comfortable on entering into participation if they knew in advance that any surplus might be repaid. In our experience, one of the issues which contractors are most concerned about is the current lack of control over any funding surplus (or fear of “trapped surplus”).