LGPS and a dose of regional insanity – Bulletin 41

David Davison

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Until quite recently I was blissfully unaware that common sense was regional, at least where LGPS is concerned.

Through advising third sector bodies in LGPS across the UK I get the chance to see variations in practice, good and bad. It is quite startling how widespread these variations are given everyone is working from broadly the same set of regulations but, unfortunately in some key areas good practice is hard to find.

A good example is in the divergence of practice in relation to how funds manage exit debts. Firstly, at a regional level, Regulation is in place in Scotland which provides funds with the option to suspend a cessation debt, which is a freedom not currently in statute in England & Wales. As per my previous Bulletin it is, however being consulted upon, though very, very, very slowly.

Fortunately, a number of funds can see the common sense in making pragmatic arrangements to deal with exits, recognising that it cannot be in anyone’s interests for admitted bodies to be accruing liabilities which ultimately they will be unable to afford. This is not only bad for scheme funding but I would also question if funds are properly discharging their responsibilities in relation to other employers, by exposing them to this level of unwarranted risk.

Some funds are issuing options papers which outline all of the options including a ‘suspension’ along with supporting details, which allows employers to make an informed choice. This seems like a sensible approach for all concerned.

Whilst ceasing further accrual can be seen by the admitted bodies as a desirable outcome in responsibly managing risk, something equally well recognised across all other DB provision in the UK, unfortunately this simple truth does not seem quite as obvious to some funds. They instead are taking a King Canute approach and just trying to avoid the rising tides around them and expressing the view that they couldn’t possibly do anything pragmatic without the specific Regulation being in place to allow them to act in a sensible way. They are much happier to see employers continue to build liabilities beyond their means, as recognised by the employers, rather than take steps to deal with the issue.

What I find interesting is how quickly action was taken to address a flaw in regulation around the treatment of surpluses, as this had a negative impact on funds’ finances, but we seem to be in an interminable loop of consultation on exits without any sign of implementation.

We’ve already witnessed numerous insolvencies directly as a result of LGPS pension participation (and indeed in other schemes such as Plumbing Pensions with similar legislation), and against a background of Covid-19 the outlook doesn’t get any more promising.

To those enlightened souls out there taking a pragmatic approach to this issue, I salute you. To everyone else including MHCLG, please get your finger out!

David Davison

Post by David Davison

Specialist consultant on pensions strategy for corporate, public sector and not for profit employers

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