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Last updated: 8 April 2021


 

Draft funding strategy statement - employer consultation closes 18 May 2021

All Local Government Pension Scheme (LGPS) Funds are required to prepare, maintain, and publish a funding strategy statement (FSS). The FSS must be kept under review and revised from time to time and at least every three years.

The last full review of the FSS was undertaken as part of the 2019 actuarial valuation and following a period of consultation the FSS was approved and published in June 2020.

However, as a result of LGPS regulatory updates on 23 September 2020, further changes are required to the FSS to reflect:

  • the  approach to be taken by the Fund in dealing with the uncertainty arising from the Goodwin court case
  • an explanation of the circumstances under which the Fund might amend contribution rates between valuations
  • detail in relation to the payment of a cessation debt and the considerations that the Fund will make before paying an exit credit in line with their exit credit
  • the circumstances in which the Fund will enter into a deferred debt agreement (DDA) as an alternative to the payment of an immediate cessation debt

Consultation

Following the new regulations coming into force, the Fund's FSS sets out the steps taken to incorporate the new regulatory requirements.

The draft statement was endorsed by Pension Fund Committee on 26 March 2021.

The final version of the FSS is subject to the outcome of a period of consultation with employers and other fund stakeholders.

The draft funding strategy statement is available on our website.

Please take time to:

  • look through the draft policy
  • consider how it may impact on your organisation as a participating employer in the Fund
  • submit any views and comments you may have via the consultation

The consultation is open until 18 May 2021.

Your response

If you wish to submit a response or have any queries please email pensions.comms@staffordshire.gov.uk with "Funding Strategy Statement" as the subject title of your email.


 

Exit credits policy

In April 2018, the government announced a change to LGPS regulations to allow exit credits to be paid to employers for the first time.

Exit credits arise when an employer is leaving the LGPS, and an actuarial assessment shows their pension liabilities have been overfunded and there is a funding surplus at the date of exit. Prior to this change, no exit credits were payable, but employers were responsible for meeting any funding shortfall on exit.

In the months after exit credits were introduced, concerns were raised about unforeseen impacts, specifically where employers had outsourced services or functions and had included specific pensions risk provisions in service agreements. It became clear that service providers were becoming entitled to exit credits where this was not the intention of the employer when the services were tendered, and service agreements made.

In May 2019, the government launched a further consultation on amending the exit credit provisions, to enable an LGPS administering authority to consider a range of factors in determining whether an exit credit is payable, including the level of pension risk that an employer or service provider has borne.

The final outcome of the consultation was announced in February 2020, and has been implemented via the Local Government Pension Scheme (Amendment) Regulations 2020 (the amending regulations), which came into effect on 20 March 2020.

Staffordshire Pension Fund consulted with its employers on its exit credits policy and it has been published on our website.


 

Fund's annual general meeting

The Fund's slightly delayed 2020 AGM was held on 23 February 2021 and once again proved to be a very successful event. Presentations were made by Fund officers and Hymans Robertson (the Fund actuary) and covered the following:

  • presentation of the 2019/20 annual report and accounts
  • general Pension Fund administration and investment updates
  • actuarial update by the Fund's actuary - Hymans Robertson

Presentations

Full copies of the AGM presentations are available below for you to print out:


 

£95K exit payment cap no longer in place

On Friday 12 February, HM Treasury announced that the Restriction of Public Sector Exit Payments Legislation has been revoked with immediate effect, due to 'unforeseen consequences' of the legislation. The (brief) Treasury guidance (external link to a PDF document) on this can be found on their website.

As a consequence of the Treasury announcement the following applies to the Fund and employers:

  • for exits from 12 February 2021, LGPS administering authorities must pay qualifying scheme members an unreduced pension under regulation 30(7) of the LGPS 2013 regulations. Scheme employers will be required to pay full strain costs in relation to those unreduced benefits, as notified by their administering authority. Employers should not make cash alternative payments to either the scheme member or the administering authority
  • the guidance sets out HM Treasury's expectation that employers should pay the additional sums that would be paid had the cap not applied for employees who left between 4 November 2020 and 12 February 2021

Further information

To further assist employers the Local Government Association (LGA) have published a document which sets out the information for employers on the position for redundancy and business efficiency exits now that the cap has been disapplied. It applies to exist of LGPS members who are 55 and over.


 

  Please note: regulations revoked on 12 February 2021

Fund’s pension discretion - public sector exit payment cap

Background to the public sector exit payment cap

The Public Sector Regulations 2020 came into force with effect from 4 November 2020. These placed a £95,000 cap on the total of exit payments made to an employee, when they are made redundant or their employment is terminated for reasons of business efficiency. The Ministry of Housing, Communities and Local Government (MHCLG) has opened a consultation seeking views on proposals for further reforming exit payment terms, by employers. The consultation also proposes changes to the Local Government Pension Scheme (LGPS) Regulations, in order to accommodate the £95,000 exit payment cap. This consultation closes on 18 December 2020, with the amending regulations coming into force early in 2021.

As the amendments to the LGPS Regulations were not in place when the £95,000 cap came into force, the Staffordshire Pension Fund sets out our policy below for the payments of benefits related to redundancy and business efficiency exits, that occur from 4 November 2020, until the LGPS regulations are changed to accommodate the exit payment cap.

Staffordshire Pension Fund - administering authority policy

Please note: this policy applies only to LGPS members who are aged 55 or over.

If the total of the exit payment elements are less than or equal to £95,000, LGPS benefits are payable immediately, without reduction for early payment, in line with the current regulations.

If the total exit payment is over £95,000, there is a conflict between the exit payment cap regulations and the current LGPS regulations and therefore, the Fund's discretionary policy is to offer the LGPS member the opportunity to receive one of the following:

  • a deferred benefit under LGPS regulation 6
  • a fully actuarial reduced pension under LGPS regulation 30(5)

Who does the exit payment cap apply to?

It applies to all public sector employees and employers including councils (metropolitan, county, district, borough) police and fire authorities and academies.

What is covered?

The exit payment cap is set at a total of £95,000 with no provision for this amount to be index-linked. Exit payments include redundancy payments (including statutory redundancy payments), severance payments, pension strain costs - which arise when an LGPS pension is paid unreduced before a member's normal pension age - and other payments made as a consequence of termination of employment.

The cap applies to all exit payments that arise within a 28-day period and the regulations cover the process to follow if an individual has multiple exits from public sector employment within 28 days.

The cap will only apply to those individuals where the combined total value of their exit payments (including pension strain costs) is greater than the £95,000 limit. Where it does apply then the value of the exit payments will have to be reduced to the point where the total value of all exit payments is no greater than £95,000.

Printable version

If you wish to print out this information, please select the document below:

Further information

If you need any further information about the areas covered by these notes, please contact us.


 

Exit cap information for employers from the LGA

The LGA have published an information note for employers on the exit cap (external link to a PDF document). The document is available on the employer guides and documents page of the LGPS regulations and guidance website.

It supplements the public sector exit payments information on the scheme advisory board’s website.


 

  Please note: regulations revoked on 12 February 2021

The £95,000 exit payment cap regulations now in force from 4 November 2020

Please note: the exit cap applies to all public sector employees and employers including councils (metropolitan, county, district, borough) police and fire authorities and academies.

The Restriction of the Public Sector Regulations 2020 came into force today 4 November 2020. You will also be aware that the Ministry of Housing, Communities and Local Government (MHCLG) has opened a consultation seeking views on proposals for further reforming exit payment terms. The consultation proposes changes to the LGPS regulations in order to accommodate the £95k exit payment cap. The exit payment cap applies where there is employer funded compensation for early loss of office.

As previously advised the amendments to the LGPS would not be place when the £95k cap came into force and both HM Treasury and MHCLG recognised the predicament this puts local government employers and LGPS administering authorities in.

We would therefore refer Employers to the letter of 28 October from MHCLG Minister, Luke Hall, sent to LGPS administering authorities and local authority chief executives, in which the government set out its view that the Exit Pay Regulations effectively curtail the use of LGPS Reg 30(7) to pay an immediate unreduced pension when the cap is breached. According to this view, a ‘capped’ member should only receive an immediate pension under LGPS Reg 30(5) (with full actuarial reductions applied), or a deferred pension, together with a ‘cash alternative’ payable by the employer under cap Reg 8 of the Exit Cap Regulations.

Employers and LGPS administering authorities will need to take their own legal advice on what to do in the period between the Exit Cap Regulations coming into force on 4 November and the LGPS Regulations being amended early next year to expressly remove the entitlement to an unreduced pension under Reg 30(7) which would result in a breach of the cap. However, subject to any such advice, the Scheme Advisory Board Opinion which is based on the legal advice it has obtained, is:

“the course of action presenting the least risk to both LGPS administering authorities and scheme employers is for the:

  • LGPS administering authority to offer the member the opportunity to take a deferred benefit under LGPS regulation 6 or a fully actuarially reduced pension under LGPS regulation 30(5)
  • Scheme employer to delay the payment of a cash alternative under regulation 8 of the Exit Cap Regulations”

Urgent action to be taken by public sector employers

Employers should carefully consider and assess the impact the changes confirmed by the government will have on their organisation and employees, specifically if an employee's retirement date is after the implementation of the exit cap but before the changes to the LGPS regulations are made to accommodate the £95k exit payment cap.

Further information

To further assist employers, see the Scheme Advisory Board's website for all the latest information on public sector exit payment cap


 

  Please note: regulations revoked on 12 February 2021

The £95,000 exit payment cap - effective from 4 November 2020

The legislation implementing the £95k cap (external link to a PDF document) on exit payments has now been signed and comes into force on 4 November 2020.

Please note: the exit cap applies to all public sector employees and employers including councils (metropolitan, county, district, borough) police and fire authorities and academies.

We understand the guidance and directions to accompany the regulations will be issued shortly. This will set out the discretionary waiver process and the position of exits agreed before 4 November 2020, where the date of leaving is after.

You will be aware that Ministry of Housing, Communities and Local Government (MHCLG) have opened a consultation seeking views on proposals for further reforming exit payment terms. The consultation proposes changes to the LGPS regulations in order to accommodate the £95k exit payment cap. It also proposes a limit on cash severance payments and for the strain cost to be reduced by the value of any statutory redundancy payment made.

Clearly, the amendments to the LGPS will not be in place when the £95k cap comes into force and both HM Treasury and MHCLG are aware of the predicament this puts local government employers and LGPS administering authorities in. Again, we understand that MHCLG will be issuing a statement on this shortly. In the meantime, the scheme advisory board (SAB) is seeking legal advice concerning the risk of challenge to LGPS authorities during this period.

Please note: in the period between 4 November 2020 and the date the LGPS regulations are amended:

  • only exits where the cost exceeds the £95k cap will be impacted
  • the statutory guidance on standard strain cost will not be effective i.e. Staffordshire Pension Fund will continue to calculate strain cost on a local basis
  • the proposals in the MHCLG consultation around limiting cash severance payments and the strain cost being reduced by the value of any statutory redundancy pay will not apply

MHCLG consultation on further reform of exit payments

In addition to the £95k exit payment cap MHCLG has launched a consultation on changes to the Local Government Pension Scheme (LGPS) and Discretionary Compensation Regulations (external link to a PDF document). The consultation covers the required changes to compensation and pension regulations to implement both the £95K exit payment cap and the public sector exit payments further reform proposals (external link to a PDF document) issued by HMT in 2016.

The latter proposals were left to individual departments to implement rather than being via central HMT Directions. At this stage there have been no proposals to implement an exit payment recovery process that was also consulted on in 2015. The MHCLG consultation closes on 9 November 2020. Currently no other part of the public sector has any 'live' proposals to enact the further reform proposals.

Further information

To further assist employers, see the scheme advisory board's website for all the latest information on public sector exit payment cap


 

Further update of the £95,000 exit payment cap

Please note: the exit cap applies to all public sector employees and employers including employers and employees of councils (whether metropolitan, county, district, borough or parish) police and fire authorities and academies.

Further to our recent communications, we are keeping you informed of the government's consultation on changes to the Local Government Pension Scheme (LGPS) and Discretionary Compensation Regulations (external link to a PDF document).

The Staffordshire Pension Fund's actuary has produced a briefing note providing examples of how the exit cap restriction will apply to the Local Government Pension Scheme.

The worked examples demonstrate the 'before and after' impact of the reforms on employees, and the new options that will be available post reform. The examples are illustrative only and are based on the actuary's current understanding of the government's intentions as set out in the consultation document.

Please note: the scenarios shown should not be relied upon for retirement planning and may not reflect the reality of legislation and/or the government actuary's department (GAD) guidance when they are finalised.