22 May 2018

On 19 April 2018 the Ministry of Housing, Communities and Local Government published its response to the May 2016 consultation on the Local Government Pension Scheme Regulations 2013.

The consultation included proposals on employer exit credits, the introduction of "New Fair Deal" principles to the Local Government Pension Scheme (LGPS) and changes to benefit aggregation rules. You can read more about this in our previous article ‘Consultation on proposed changes to the Local Government Pension Scheme’. 

Exit credits

From 14 May 2018, when an employer exits the LGPS because it no longer employs active members (or otherwise ceases to be a ‘scheme employer’), the appropriate administering authority of the LGPS fund will be required to pay a credit to the exiting employer where there is a surplus in respect of its pension liabilities.

In the light of concerns raised during the consultation, the government has extended the period for an administering authority to pay an exit credit from one month to three months (or at such interval as is agreed between the authority and the employer).

Administering authorities should consider whether they need to update their funding strategy statements and other policies to accommodate the possibility of having to pay an exit credit. Equally, administering authorities and local government employers may wish to consider (where a surplus is a reasonable possibility) existing admission agreements and outsourcing contracts to identify how an exit credit should be treated. 

The legislation introducing the change is the Local Government Pension Scheme (Amendment) Regulations 2018/493.

New Fair Deal

In light of the concerns raised during the consultation process, the government has decided it would not be in the best interests of administering authorities, members or employers to introduce New Fair Deal principles in the ways previously proposed.   

The main concerns related to the dangers of providing automatic admitted body status to contractors following outsourcings from public bodies where the LGPS is already facing problems with increasing numbers of participating employers.

The current position, whereby administering authorities may allow contractors to participate in the LGPS by means of entering into an admission agreement, is therefore not materially changed. However, from 14 May 2018, some changes have been made to the way employees of admitted bodies become eligible for active membership (which may need to be reflected in new admission agreements from that date).

The government says it remains committed to bringing New Fair Deal into the LGPS and plans to issue a further consultation paper by the end of 2018.

Aggregation rules

Proposals to reduce the circumstances when benefits from different periods of LGPS membership would be aggregated automatically will not be going ahead for the time being. This is because the government considers them inconsistent with Schedule 7 of the Public Service Pensions Act 2013, which requires final salary protection to be provided where a member re-joins a public service scheme within five years of leaving another.

You can download the LGPS scheme regulations government response (PDF) for the full details.

Key contact

Michael Hayles

Michael Hayles Partner

  • Pensions
  • Public Sector Pension Schemes
  • Financial Services

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