Published by Annemarie Allen on
Scheme employers should check side agreements and may require legal advice on their amendment.
The change to Regulation 64 provides more flexibility for administering authorities to manage liabilities when scheme employers cease to have active members in their Fund. Previously, any surplus has been retained in the Fund upon cessation.
It is included in the new LGPS (Amendment) Regulations 2018 which finally emerged on 19 April in response to a previous consultation which had closed in August 2016. The regulations have been laid in Parliament and come into force on 14 May 2018.
While some provisions have been backdated to 1 April 2014, this particular provision has not; effective from 14 May 2018, this has created a “cliff edge” for employers ceasing either side of the date, but avoids the many complications that backdating would otherwise have caused. The provision is expected to prove popular with employers participating after this date.
In our response to the draft regulations, we raised some concerns - some of which have been addressed and others not:
Administering authorities should review processes and procedures and ensure that employers understand the need for prompt provision of accurate leaver details.
Scheme employers should now check any side agreements in place and may require legal advice on their amendment to prevent any unintended situations arising where surplus assets are returned directly to the ceasing employer under this new provision.
Administering authorities should review processes and procedures and ensure that employers understand the need for prompt provision of accurate leaver details for active members in order to achieve the tight timescales for payment out of surplus assets.
Administering authorities should also remember the provision in regulation 64(4) which enables them to obtain a certificate from their actuary adjusting the employer contributions - with a view to providing assets equivalent to any exit payment to the Fund by the exit date, which may still remain an attractive option to run a surplus down over the preceding years.
Finally, they should also review and update their Funding Strategy Statement in discussion with their Actuary. Our exit credit briefing note will explore the actuarial aspects of this new provision and we will also be contacting our clients individually to discuss this further.
For more information on the 2018 regulations, and what they mean to you – look out for our full briefing note.