Exit credits policy

 

The Local Government Pension Scheme (Amendment) Regulations 2020 came into force on 20 March 2020 and are retrospectively effective from 14 May 2018.

If an employer becomes an exiting employer on or after 14 May 2018 under Regulation 64 of the 2013 Local Government Pension Scheme (LGPS) Regulations (as amended) it may be entitled to receive an exit credit.


 

Determination  Back to top

In accordance with regulation 64(2ZAB) of the LGPS Regulations 2013, the administering authority will determine the amount of any exit credit (which may be zero) by taking into account the factors set out in regulation 64(2ZC):

  • the extent to which there is an excess of assets in the fund relating to that employer over the liabilities specified in paragraph (2)(a)
  • the proportion of this excess of assets which has arisen because of the value of the employer’s contributions
  • any representations to the administering authority made by the exiting employer and, where that employer participates in the scheme by virtue of an admission agreement, any body listed in paragraphs (8)(a) to (d)(iii) of Part 3 to Schedule 2 to these regulations
  • any other relevant factors

 

Exit valuation  Back to top

When an employer becomes an exiting employer, Staffordshire Pension Fund (the Fund) must obtain both of the following from the Fund actuary:

  • an actuarial valuation as at the exit date of the liabilities of the Fund with respect to benefits in respect of the exiting employer's current and former employees
  • a revised rates and adjustments certificate showing the exit payment due from the exiting employer; or the excess of assets in the Fund relating to that employer over its liabilities as calculated by the valuation

When commissioning the valuation from the actuary, the Fund will also request the actuary to confirm the proportion of any excess of assets which has arisen because of the value of the employer's contributions. This a factor the Fund must have regard to when making its determination as to the amount of the exit credit.


 

Notification  Back to top

The Fund will notify its intention to make a determination on whether to pay an exit credit to:

  • the exiting employer
  • where the exiting employer is a 'transferee' admission body, the scheme employer in connection with that body (i.e. the letting authority)
  • where the exiting employer is an admission body of any type, any other body that has given a guarantee in respect of the admission body

 

Policy  Back to top

In determining whether an exit credit may be payable, Staffordshire Pension Fund (the Fund), will review each case on its own merits and will apply the following guidelines:

  1. For pre-14 May 2018 admissions, the Fund will take into account the fact that original commercial contracts between admission bodies and letting authorities or guarantors could not have been drafted with regard to the May 2018 regulation changes that implemented exit credits retrospectively. Subject to any representations to the contrary, it will be assumed that the employer priced the contract accordingly and that no subsequent agreements covering the ownership of exit credits have been negotiated.
     
  2. The basis for calculating an employer’s pension liabilities to determine the level of any exit credit, will generally be as set out in the Fund’s funding strategy statement.
     
  3. No exit credit will normally be payable to an admission body which participates in the Fund via a mandated pass through approach, as set out in the funding strategy statement.
     
  4. Employers within a funding pool (e.g. the town and parish councils' pool or a multi-academy trust with more than one school in the Fund) will not normally receive an exit credit payment, upon leaving the Fund, provided the remaining participants of the pool take responsibility for the residual assets and liabilities after the employer has exited.
     
  5. If an employer becomes an exiting employer under regulation 64 of the 2013 LGPS regulations (as amended) an exit payment may be due to the Fund. If the employer enters into an arrangement or a 'deferred debt agreement' with the Fund, over such period of time as the Fund considers reasonable, to pay the exit payment, no exit credit will be payable at any future date in relation to that specific agreement, unless the agreement explicitly requires it.
     
  6. The Fund may calculate an exit credit payment which reflects any contractual pension risk sharing provisions between the exiting employer and the letting authority and/or other relevant scheme employer. This information, which will include which party is responsible for which funding risk, must be presented in writing to the Fund and in clear terms. The document must be agreed by the exiting employer and the letting authority and/or other relevant scheme employer and presented to the Fund no later than one month after the exiting employer ceases participation in the Fund. Where a variation to the original letting contract is required to facilitate any agreement containing the required information, this will be agreed between the exiting employer and the letting authority and/or other relevant scheme employer.
     
  7. Where a guarantor or similar arrangement is in place, but no formal risk sharing arrangement exists, the Fund may consider any representations as to how the approach to setting contribution rates, payable by the exiting employer during its participation in the Fund, reflects which party is responsible for funding risks. This may inform the determination of the value of any exit credit payment.
     
  8. If an employer leaves on the 'gilts exit basis' as set out in the funding strategy statement, any exit credit will normally be paid in full to the employer, subject to consideration of the individual circumstances.
     
  9. If an admission agreement ends early, the Fund will consider the reason for the early termination, and whether that should have any relevance on the Fund’s determination of the value of any exit credit payment.
     
  10. If a scheduled body or resolution body becomes an exiting employer due to a reorganisation, merger or take-over, no exit credit will generally be paid.
     
  11. If there is any doubt about the applicable LGPS benefit structure at the date of exit (e.g. McCloud remedy), the Fund’s actuary may include an estimate of the possible impact of any resulting benefit changes when calculating an employer’s pension liabilities to determine the level of any exit credit.
     
  12. The Fund will take into account whether any contributions due or monies owed to the Fund remain unpaid by the exiting employer at the cessation date. If contributions or monies are due to the Fund, the Fund will notify these to the exiting employer and will deduct these from any exit credit payment.
     
  13. Costs associated with the determination of an exit credit payment will be deducted from any exit credit payment at the Fund's discretion.
     
  14. The Fund will consider any representations made by the letting authority and/or other relevant scheme employer regarding monies owed to them by the exiting employer in respect of the contract or services under which the exiting employer participates in the Fund. These representations must be made in writing to the Fund in clear terms no later than one month after the exiting employer ceases participation in the Fund. Where a variation to the original letting contract is required to facilitate any agreement containing the required information, this will be agreed between the exiting employer and the letting authority and/or other relevant scheme employer.
     
  15. The Fund’s final decision will be made by the Head of Treasury and Pensions in the first instance, in conjunction with advice from the Fund's actuary, and/or legal advisors and Director of Corporate Services where necessary, in consideration of the points held within this policy. Where any dispute remains unresolved, the parties will use the internal dispute resolution procedure specified in MHCLG guidance and regulations.
     
  16. The Fund acknowledges that there may be some situations which are bespoke in nature and do not fall into any of the categories set out above. In these situations, the Fund will take into account the factors it considers to be relevant in determining whether an exit credit is payable, including representations from relevant parties. The Fund's decision on how to make an exit credit determination in these instances will be final.
     
  17. The Fund will advise the exiting employer of the exit credit amount due to be repaid and seek to make the payment within six months of the exit date. In order to meet the six-month timeframe, the Fund requires prompt notification of an employer’s exit and for all data and relevant information to be provided as requested. The Fund is unable to make any exit credit determination or payment until it has received all data and information required and if the delay caused by the Fund requiring data means the 6 month date is passed, the parties will work constructively to enable the Fund to reach its decision as soon as possible thereafter.
     
  18. If there is any dispute from either party with regards interpretation of contractual, risk sharing or guarantor agreements as outlined above, the Fund  will withhold payment of any exit credit until such disputes are resolved by the letting authority and/or other relevant scheme employer and the exiting employer.

 

Appeals  Back to top

If a party involved in the exit credit process set out in this policy wishes to dispute the Fund's determination, this must be routed through our internal dispute resolution procedure (IDRP).

If the relevant party is still unhappy with the exit credit determination, having gone through all the stages of the IDRP, they may be able to take a complaint to the Pensions Ombudsman.


 

Review  Back to top

This policy will be reviewed at least every three years as part of the triennial actuarial valuation process or following any relevant changes in the LGPS regulations.


 

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