Background
A small charity with one remaining active LGPS member faced the risk of triggering an unaffordable exit debt. By mid 2024, improved funding created a surplus, opening the opportunity for an exit credit. Working collaboratively, a tailored replacement pension offer was agreed with the employee, including DC pension, additional LGPS benefits, a cash lump sum and financial advice. The employee exited in July 2024, allowing the charity to access the exit credit and remove a significant financial risk, achieving a positive outcome for both parties.
Problem
A small charity with a long-standing participation in the LGPS had closed access to new employees, leaving only one active member. The concern was that when this last employee eventually exited the scheme, it would trigger a significant and unaffordable exit debt, posing a serious financial risk to the charity. This had deterred action for many years.
Action
By mid 2024, improved LGPS funding resulted in a cessation surplus of £160,000, transforming the financial context. With the risk now turned into an opportunity, the charity decided to pursue an LGPS exit and sought to engage the employee in a mutually agreeable transition.
Collaboration
We partnered with the charity to design a comprehensive and attractive replacement pension offer for the employee, which included:
- A generous defined contribution (DC) pension arrangement.
- Purchase of additional LGPS pension to offset lost service.
- A cash lump sum.
- Funding for independent financial advice.
Following consultation, further refinements were made to the offer. The employee ultimately agreed to exit LGPS in July 2024.
Solution
The employee’s exit triggered the exit credit, which was used efficiently:
- The cost of the additional LGPS pension was deducted directly from the exit credit, avoiding a cash outlay.
- The charity removed a long-term financial liability from its balance sheet.
- The employee received a generous, well informed package, ensuring they were not financially disadvantaged.
This collaborative, risk-reducing approach delivered a strong outcome for both parties and demonstrated a model that can be adapted for other employers and employee cohorts.
Key Milestones
Funding Position Improved: Mid 2024
This shift from a feared exit debt to a surplus (£160,000) was the pivotal turning point that made the LGPS exit feasible and financially advantageous.
Development of a Replacement Pension Offer
Designing a tailored, attractive package (DC pension, additional LGPS pension, lump sum, and financial advice).
Agreement to Exit LGPS: July 2024
The employee’s agreement was the critical enabler for triggering the exit and accessing the credit, made possible by the strength of the offer and the collaborative process.
Exit Credit Received and Used Efficiently
The exit credit not only benefited the charity financially, but was used smartly to cover LGPS pension costs, delivering cash-flow efficiency.
