- The value of these liabilities will vary over time. If a further shortfall arises the funding costs for this will have to be picked up the new employer in full even though they did not employ these individuals at the time they accrued the benefits.
- Where liabilities should have been notionally uprated frequently this has not been actually carried out or the exact terms have been lost ‘in the mists of time”.
- Even if the benefits were fully funded this would have been on an on-going basis and not on a cessation basis. This means that on an ultimate exit the latest employer would pay a cessation debt on all these previously accrued benefits.
- Should members benefits be subject to strain costs such as on redundancy or ill health early retirement these additional costs would have to be met in full by the latest employer.
Mostly when people are told they have an inheritance it’s good news. A long lost relative or friend has bequeathed some money to you which opens up the opportunity to do all (or at least some) of those expensive items on the bucket list. Unfortunately an inheritance in an Local Government Pension Scheme (LGPS) is usually every bit as much of a surprise and shock, but far from as welcome for the recipient. Many organisations, having become a participant in the LGPS were blindly unaware that to do so meant that they automatically inherited all the past liabilities for any staff transferring to or continuing with the organisation. Frequently this can mean that charities inherit hundreds of thousands of pounds of liabilities and in some cases many millions. This anomaly arises because LGPS is unable to identify and allocate past service liabilities between employers, apparently only being able to allocate all of the liabilities to the latest employer. This is undoubtedly incredibly unfair as it means local authorities can deftly transfer the funding risk to an unsuspecting charity. Even where guarantees are provided tend only to protect charities on insolvency and not on voluntary exit or on increases in contributions. The approach used by the Fund (in most but not all cases) notionally assesses the liabilities as being fully funded at outset so even if the funding level is only 90%, for example, it is assumed to be 100%. However this is far from a perfect solution for a number of reasons:-