LGPS Exit Debt: How Strategic Advice Cut £600K in Liabilities

Background

A small charity reduced its LGPS exit debt from £700,000 to £100,000 through strategic advice, a challenge to assumptions, and collaboration on a revised cessation basis and Deferred Debt Agreement.

Problem

In June 2023, a small charity triggered an exit event from the Local Government Pension Scheme (LGPS) when its last active member left pensionable service. Later that year, the Fund informed the charity that the resulting exit debt was £700,000 a sum that was financially unmanageable for the organisation and posed a significant risk to its sustainability.

Action

We supported the charity in reviewing the basis for the exit debt calculation. Our analysis identified that some of the assumptions used by the Fund appeared overly prudent. We advised the charity to challenge these elements, and formal representations were made to the Fund.

In 2024, following this challenge, the Fund introduced an updated cessation basis. To enable access to this revised approach, we also supported the charity in establishing a Deferred Debt Agreement (DDA) with the Fund, allowing it to continue participating beyond the original exit date.

Collaboration

This outcome was the result of close collaboration between the charity and the Fund. The Fund engaged constructively with the concerns raised and worked jointly with the charity to implement a solution. The introduction of the updated cessation basis, alongside the use of a DDA, reflected a shared commitment to a fair and sustainable resolution.

Solution

On 31 March 2024, the charity formally exited the LGPS under the updated cessation basis, with a final exit debt of just £100,000 a £600,000 reduction from the original figure. This not only protected the charity’s financial position but also removed a significant risk from its balance sheet.

Key Milestones