Deficits working group update
The Board’s deficits working group met on Tuesday 8th November to consider a work plan for the coming months. It was agreed to consider the management of deficits in three employer groups:
- Tax payer backed employers – Local authority and related companies plus admitted bodies with pass through arrangements or local authority guarantees
- Private sector employers with no central or local authority guarantee– admitted bodies and Higher and Further Education establishments
Tax payer backed employers
Local authorities as sponsors of the LGPS face a different set of financial rules than private sector pension fund employers. In particular they are prevented from passing assets (or the proceeds from the sale of assets) directly into the pension fund due to it being for all intents and purposes a revenue reserve of the administering authority. Some authorities have considered the use of asset backed funding vehicles in order to make use of assets to offset pension costs. The Board has commissioned GAD to review the appropriateness and potential challenges of such vehicles for the LGPS which will be published on this site once finalised.
A more straightforward solution for those authorities who have capital receipts or assets they would like to use to offset deficits would be a regulatory power under section 9 of Local Government Act 2003. In this situation the Secretary of State could provide for the use of assets or receipts either in set circumstances or on a case by case basis. The Board will seek to work with a small number of administering authorities to build a business case for such a regulation.
The Board has commissioned PWC to investigate the issues caused by the increasing numbers of academies in the LGPS and gather views on potential approaches to addressing those issues. PWC will provide an update to the Board on 6th December with a full report following in March next year. Further details on this work can be found here
Private Sector Employers
The confirmation from government that universities and colleges should be considered private sector bodies together with the publication of insolvency regulations for colleges has shifted the risk profile for these employers bringing them alongside admitted bodies in the private and third party sector. This group of employers has a range of issues including a historical tranche without any form of guarantee, those who find the scheme too expensive but cannot leave due to large legacy liabilities, some with capital funding issues similar to tax payer backed employers and those for whom a public sector pension scheme may no longer be appropriate to their objectives.
The Board will scope a similar piece of work to that underway for academies. This programme of work would gather data on employer numbers, membership, liabilities and risks; set out the issues faced by funds, employers and members and explore the appetite for and appropriateness of a range of approaches to address those issues.