The requirement to put in place a bond is set out in Part 3 of Schedule 2 of the Local Government Pension Scheme (LGPS) Regulations. The primary aim of a bond is to mitigate the risk to the administering authority that a new employer will not be able to meet its obligations in the future.
Insurers only make bonds available to companies that meet certain financial and credit criteria, so a smaller, less well established company with limited evidence of financial strength will find it difficult to access this product.
This briefing note outlines alternative options available to employers and administering authorities at a high level. It is important that any arrangements are to the satisfaction of the administering authority.
What are the options?
- Traditional bonds
- Third party guarantees
- Pass-through arrangement
- Cash deposit
- Additional initial contribution to the Fund
- Additional ongoing contributions to the Fund
- Charge over assets