LGPS consults on changes for multi-location employers such as multi-academy trusts

This post was written by Jaimie Buchanan, PSL

The Ministry of Housing, Communities & Local Government (MHCLG) has published a further consultation on proposed reforms to the Local Government Pension Scheme (LGPS). This includes, as one of the four key proposals, changes to how multi-locational employers like Multi-Academy Trusts (MATs) can consolidate members into a single LGPS fund, regardless of geographical location. 

In a nutshell, the consultation, which runs until 22 December 2025, broadly proposes to: 

• introduce statutory criteria for MATs and other employers to apply for directions from the Secretary of State (SoS) to consolidate staff from different geographical locations into a single fund;
• remove the current requirements for SoS consent – normally obtained by applying for a direction - where the statutory criteria are clearly met; and
• retain the application procedure for a direction from the SoS where the criteria are not met, or there is a dispute between the local parties.

Why it matters for MATs

The proposed reforms, if implemented, mark a major shift for MATs, which have historically made most of the applications to switch administering authorities under the existing procedure in the LGPS Regulations 2013. With over half the schools in England now academies, the vast majority are operated under MATs spread across multiple geographical areas. An academy is automatically assigned to its local administering authority fund under the Regulations. Consequently, MATs are often left operating with employers in multiple funds across disparate geographical areas, resulting in a lack of consistency and increasing pensions administration cost, duplication and complexity. 

The Regulations already offer employers, including MATs, the ability to apply to the SoS for a direction to substitute a different administering authority. Helpfully, this allows employers to consolidate their LGPS members into a single fund, theoretically ensuring consistency, efficient administration and lower administration costs. The direction can also include any of the practical specifics required to achieve consolidation: adjustments between funds, specifics around the transfer of assets and liabilities, and any other practical steps required. 

Employers must already weigh up the benefits of consolidation against the risks of transferring assets and member records, the cost of actuarial assessments needed, and any impact on contribution rate. LGPS funds similarly will continue to need to consider the balance between longer term investment strategy, competitiveness and the impact of contribution rates on cash flow, before consenting to consolidations. 

Proposal to adopt statutory assessment criteria

The Regulations do not currently set out the criteria for approving applications. These have historically been dealt with by MHCLG using its own internal framework. Whether or not directions are granted is entirely at the discretion of the SoS, who must only consult with bodies affected by the direction. Employers have argued this has led to a lack of transparency and consistency around the consolidation approval process and employer eligibility. This has resulted in uncertainty around whether applications will be granted, which has been problematic for decision-making and planning. 

The consultation aims to fix this by incorporating criteria into legislation, building on the framework currently in use, so that employers can assess in advance whether they are likely to meet it. 

The following criteria are proposed:

1. a clear and evidenced value-for-money assessment in favour of the consolidation;
2. a pre-existing relationship with the receiving administering authority (i.e. the MAT already has schools in that administering authority);
3. all administering authorities involved agree to the change; and
4. the receiving administering authority must be able to administer the transfer effectively.

The government has also expressed a desire to limit “contribution rate shopping”, to prevent employers selecting an administering authority primarily on the lowest contribution rate and is taking views on how it might achieve this, so we may yet see some form of restriction in the legislation. 

Removing SoS consent requirement where criteria are met

Where all criteria are clearly met, MHCLG proposes to remove the requirement to seek SoS consent. This also aligns with the government’s desire for greater devolution, with a shift towards administering authorities and employers being empowered to take decisions locally.

This relies on administering authorities and employers collaborating at the local level, however. Accordingly, if there is any dispute at a local level, MHCLG proposes a review process which would require the traditional application to the SoS for a direction. The government will be issuing guidance on when and how this new power should be used, but this is expected only to be used rarely. 

Process for applications where criteria are not met

Where the criteria are not met, the consultation proposes that SoS consent via an application will continue to be required. The aim is to ensure disputes can be resolved and, for example, authorities cannot unreasonably veto sensible consolidations. 

In considering disputed applications, the SoS will have regard to the criteria listed above, noting that the government is keen to ensure that consolidations, where analysis clearly shows that benefits clearly outweigh costs, are supported and confirms it will act as arbiter where necessary. 

The consultation acknowledges that administering authorities may be nervous about impact on cash contributions being paid in, when active members are transferring out and proposes to deal with this on a case-by-case basis, considering evidence of significant adverse cashflow impacts and effective administration of the transfer by the receiving fund. 

Comment

Given the proposed removal of the existing SoS consent requirement, the government is keen to ensure that authorities cannot unreasonably veto consolidations which present good value and can be efficiently administered. This will very much be key to how efficiently the process works in practice, given it relies heavily on local co-operation. The removal of SoS consent is part of the government’s general drive towards devolution with local parties being more heavily empowered to deal with matters at ground level. 

MHCLG says it is further considering how it will deter ‘contribution rate shopping’, where employers select funds with the lowest contribution rates, and consequently there will be several ‘safety valve’ mechanisms proposed. These are designed to ensure that administering authorities do not suffer significant detrimental impacts due to consolidations with large numbers of active members transferring out. If disputes occur between the local parties, it is anticipated these will be dealt with by the employer/MAT making the traditional application for a direction from the SoS. Clearly, if too frequently used, falling back to the old process may end up reducing the beneficial impact of these reforms. 

Whilst these proposed reforms aim to offer greater transparency and certainty on the application process and eligibility, naturally the devil will be in the detail as to how effectively these goals are achieved. We look forward to further consideration and discussion following consultation closure and responses.