Consultation on LGPS exit valuations – your chance to have your say
28th May 2019
The Ministry of Housing, Communities & Local Government has recently launched a consultation titled "Local Valuation Cycle and the Management of Employer Risk in the Local Government Pension Scheme".
The full consultation can be accessed here.
Principally, this consultation concerns exit charges and exit credits when employers leave the LGPS. The proposals concerning exit credits cause an immediate concern, as the stated intention is for the changes to be retrospective to the effective date the exit credits were introduced into legislation, i.e. 14 May 2018. Consequently, there is uncertainty concerning the position for any and all exit credits that may have been paid so far, and for those that are still in the process of calculation or yet to be triggered.
The issues arise where exit credits arise in relation to an employer whose participation in the LGPS was under a “pass through” agreement, or similar risk sharing agreement. The concern is that any exit credit in such a situation may result in windfall payments for exiting employers who were not exposed to risk during the outsourced contract term. Accordingly, proposals have been made to allow funds to assess the risk actually incurred by the exiting employer and to reduce the assessment of an exit credit to nil if appropriate. The concern which the consultation proposes to address are well known to practitioners, but the proposals to address that issue risks causing more short-term uncertainty.
The consultation is open until the 31 July 2019. It is currently unclear what shape the final proposals will take, or how quickly they will be introduced, but the consultation is an opportunity for interested parties to make their views known.
This is particularly relevant to contractors that have received (or anticipate receiving) exit credits, and to administering authorities that anticipate paying them out. A few key issues immediately arise from the consultation proposals, which interested parties may like to consider in their responses:
- Is it right that the exit credit would be assessed at zero where the exiting employer has borne no financial risk? Would a more equitable solution be that the exit credit which would be due instead accrues to the party that has borne the financial risk?
- How would exit credits that have already been paid out be treated – would the administering authority be entitled to claim them back? This issue is not covered in the consultation.
- If reclaiming exit credits is not going to be permitted, what is the incentive for administering authorities to continue complying with the law as it stands? A fund may be reluctant to promptly comply in paying out an exit credit whilst this point remains uncertain.
- If the administering authority is permitted to claim the sums back, would this be fair to the exiting employer? What would be the case if they had already spent or invested that money?
Ward Hadaway are experts in LGPS issues, so do not hesitate to get in touch with Steven Roper, or call 0330 137 3411 with any queries and to find out how we can help with any issues.
Please note that this briefing is designed to be informative, not advisory and represents our understanding of English law and practice as at the date indicated. We would always recommend that you should seek specific guidance on any particular legal issue.
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