This case study highlights a number of issues for employers who are Admission Bodies in the LGPS:
Don’t believe the indications that you are given at the outset about what deficit you may end up with at the end.
In this case, the employer had been led to believe that the 'largest' deficit that might arise would be up to a few hundred thousand. Right at the end of the contract, things got much worse, and the deficit they were being asked to pay was £1.7m – much greater than any profit that might have been made on the 7 year contract.
Understand how assets within the pension fund are allocated to you at the start of the contract; at each actuarial valuation during the contract; and at the end of the contract.
Employers’ assets and contributions are not ring-fenced within the LGPS fund, and so assets are allocated to work out deficits payable, and this is often done on a fairly approximate basis – in this case, the membership data used to establish the initial amount of assets allocated to the employer was wrong, resulting in the starting value being too low.
Don’t wait until the end of the contract to check what happened during the contract.
The Fund Actuary was relatively happy to discuss what had happened over the period since the last actuarial valuation, but felt that the issues with previous valuations (during the seven year contract) and the start of the contract should have been raised at the time.
Don’t be afraid to negotiate.
In our experience many employers just accept the figures provided by the Fund Actuary and pay up. On the face of it this is right because there is generally no process for questioning the figures, and the contract will say that the Fund Actuary’s decision is final. However, without pushing too hard in this case (because there were other commercial issues to consider), we were able to reduce the deficit payable at the end of the contract to £1m from £1.7m.