LGPS legislative logjam
02 Sep 2019 - Estimated reading time: 3 minutes
The queue is building….
Apologies for the alliteration in the title, but a recent client discussion got me thinking about the huge volume of outstanding legislation, consultations, projects and guidance affecting the LGPS.
Many of these items have been lingering for a long time. We all know that the seemingly never-ending Brexit process has been running for around 3 years. But that’s small beer in the LGPS e.g. the implementation of HMT’s “new Fair Deal” policy, launched in 2013, has been running now for a whopping 6 years.
What’s in the pipeline?
Let’s have a look at what’s causing the logjam:
MHCLG consultation on valuation cycles and employer risk – a mixed bag of proposals, covering quadrennial and interim valuations, exit payments, exit credits, and the closure of FE bodies to new entrants.
Statutory guidance on asset pooling – a response to this informal consultation is expected in the autumn.
New Fair Deal – see above - amongst other things, it introduces the concept of ‘deemed employers’ and removes the broadly comparable scheme option.
£95k exit payment cap – outlines the Government’s proposal to cap exit packages for public sector workers. This is another long running saga, being first proposed back in 2015.
GMP indexation – a further consultation is expected before 2021 to confirm the Government’s long-term solution to indexation, which it claims will also meet the requirements of GMP equalisation.
McCloud ruling/Pause of cost management mechanism - changes are likely to be made to LGPS benefits once the dust settles on these two issues.
Good governance project - with our report issued, two working groups have been set up by SAB to take forward the findings and conclusions.
Third tier employers project - a working group set up by SAB will be making recommendations on the back of the initial report.
CMA Order - following the CMA’s review of the investment consulting and fiduciary management markets, TPR has issued draft guidance for consultation on how funds should engage with suppliers on both markets. It is not yet entirely clear how LGPS funds and pools are affected.
No doubt there are others that I have missed.
The joys of being a pensions manager
As you might imagine, all of this uncertainty is making life rather tricky for pension managers in the LGPS. To take a couple of examples:
Exit credits – I’ve heard of numerous cases involving old pre-May 2018 contracts where exit credits run into millions of pounds. Funds are managing these in different ways, and in some cases legal action is being taken by contractors to get their hands on the money. It would be very helpful if the solution to the current consultation on this topic made it clear that exit credits only apply to new contracts taken out after May 2018.
McCloud ruling – this is causing plenty of accounting angst for employers and their auditors (and management time for fund officers), with some sticking the impact on the balance sheet and others simply noting the estimated costs. Funds will also need to decide how to allow for this cost in funding strategies at the valuation.
When will it ease?
To be frank, who knows?!
The current pipeline has built up over time, with several initiatives launched in recent years remaining unresolved. The LGPS has many oversight bodies - such as SAB, TPR, MHCLG (in E&W) or SPPA (in Scotland), CIPFA, CMA, and HMT – with differing roles and responsibilities, and it seems unlikely that we will start to see the number of initiatives tailing off any time soon.
We can only hope that policy makers recognise that a steady trickle, and not a biblical flood, of changes would be very welcome!