The Local Government Pension Scheme (LGPS) is once again in the headlines. The Department for Communities and Local Government's (DCLG) consultation on the application of the principles set out in the October 2013 New Fair Deal guidance (the New Fair Deal) to the local government sector has recently closed. Many housing associations participate as admission bodies in the LGPS in order to provide continued access to the scheme for staff whose employment has transferred from a local authority.
We set out below a brief summary of the key proposals and highlight the areas to watch for housing associations participating in the LGPS:
Transferring employees must be given access to the LGPS
In broad terms, the draft amendment regulations (the "Draft Regulations") require employees who are compulsorily transferred from local authorities and certain other employers to be given continued access to the LGPS.
A new category of employee and employer are to be introduced: a 'protected transferee' and a 'protected transferee employer'.
A protected transferee employer will be required to enter into an admission agreement to provide all protected transferees with access to the LGPS. The option for a provider to offer membership of a broadly comparable scheme will be removed. Any compulsory transfer of a protected transferee to a different employer will trigger the new provisions. Any transferring employees who are eligible for the LGPS but did not join prior to their transfer will remain eligible to join the LGPS post-transfer.
Who is protected?
It is the introduction of this protected transferee, the definition of which is wide, which would seem to have the greatest impact on housing associations.
There is no distinction made between employees who transferred from local government and are active LGPS members and new employees of admission bodies who have simply been offered LGPS benefits. For example, new hires taken on by a housing association and given access to LGPS benefits would now be protected under the definition.
A requirement for continued provision of LGPS benefits in these circumstances is likely to have an impact on housing associations looking to sub-contract services, restructure and outsource and also for housing associations looking to take over services from other housing associations.
Direct statutory protection
In addition, the consultation envisages the implementation of the New Fair Deal principles through the Draft Regulations, which hard-wire the protection into legislation. This is in contrast to other public service pension schemes where the regulations set out the mechanism by which the pension protection is to be provided e.g. Direction Employers in the NHS Pension Scheme, but the legal requirement to provide the pension protection contemplated by New Fair Deal is a contractual obligation.
The Draft Regulations therefore potentially put providers at risk of being subject to overly prescriptive requirements. It also means that even though a contract with a new employer may not reference the New Fair Deal obligations, the new employer will nonetheless be subject to these requirements. In hard-wiring the protection, the Draft Regulations essentially create a new form of statutory pension.
Risk and cost
The proposals do not alter the fact that an LGPS admission body remains responsible for the financial consequences of participating in the LGPS (e.g. varying employer rates, early retirement strain and exit payments).
What next?
More detail on the proposals are contained in the consultation document. The consultation closed on 20 August and we recommend that housing associations that are admitted bodies monitor the outcome. We will provide a further update when the response to the consultation and final regulations are published.
For further information, please contact Jennifer Lewis or Eleanor Lamb.