Employers participating in the Local Government Pension Scheme (LGPS) face significant hurdles – legal, financial and administrative.
The Pensions and Lifetime Savings Association (PLSA) used its Local Authority Conference on 18 May to launch its new guides, aimed at helping employers overcome these obstacles. The guidance is intended to provide scheduled bodies with an introduction to the LGPS and to help local government contractors navigating entry into the LGPS.
Guidance regarding the entry requirements and risks for scheduled bodies and contractors has historically been sparse, so the PLSA’s guidance is certainly helpful. With over 13,000 employers already delivering local public services (who may be admission bodies) as well as a rapidly expanding number of scheduled bodies, many employers have already stumbled their way through the tricky journey of LGPS entry.
"Guidance regarding the entry requirements and risks for scheduled bodies and contractors has historically been sparse, so the PLSA’s guidance is certainly helpful."
While the guides may not be timely for those who have already gone through the process, they are useful for existing and potential participants, and are especially for new entrants.
Separate guides are available, depending on the employer’s role. The issues faced by employers differ vastly depending on whether the employer is a government body (such as an academy or county council) or a contractor. For instance, for contractors there are a number of potential pitfalls to consider surrounding contract terms and length.
Easy-to-follow guidance is welcome given that the various parties involved, in particular in a public sector outsourcing contract, may have no prior experience of defined benefit (DB) pensions and the associated risks.
There are added complications in that the contract is often for a fixed term, bringing in much shorter term considerations than for a private sector DB scheme. For scheduled bodies we might expect the HR department to take responsibility for looking into the various guidance, entry and participation requirements, with oversight from the finance director or other senior finance staff.
Things are trickier for contractors and the 'who is responsible?' section of the guide backs this up – listing a host of entities from the contracts team to senior company executives.
Pay attention to risks
Participating in any DB scheme carries risks for an employer; however there are a number of risks unique to the LGPS. Many public sector pension scheme participants may be unaware that one of the major risks of participation surrounds exit terms and costs. This topic is only briefly covered in the current guides, but can be of great financial importance for employers.
Given the intricacies involved in exiting the LGPS, employers may look forward to the release of the third guide from the PLSA. In the meantime, the guidance for scheduled and admitted bodies is helpful.
However each situation is different and the best solution needs to be considered in light of the circumstances of each particular contract. There can therefore be significant value in taking separate actuarial advice, and Barnett Waddingham’s smaller deals service is aimed specifically at the smaller end of the market, meaning that advice can be cost effective, even for the smallest deals.