As many of you will be aware, there has been a lot of debate over recent months about academies and the Local Government Pension Scheme (LGPS). An academy is a scheme employer in the LGPS and non teaching employees of an academy are automatically entitled to membership of the LGPS.
The problem – Higher employer contribution rates
A number of administering authorities around the country administer the LPGS. Some academies and schools seeking to convert to academy status have raised significant concerns about how academies are treated by administering authorities. In particular, academies often face higher employer contribution rates than maintained schools and inherit the deficit in the LGPS attributable to the non teaching employees who transfer from the existing school to the academy trust. Administering authorities determine the level of deficit and the recovery period over which the deficit must be paid.
Different treatment for academies
Administering authorities have stated that as an academy is a private company in its own right, it is at greater risk of potential closure than a local authority and therefore administering authorities have treated academies differently to local authorities. This has put greater strain on academies and has also meant that some schools seeking to convert have been unable to do so because of the scale of the LGPS liabilities. Some academies are experiencing significantly higher LGPS employer contribution rates than those set when they were a local authority maintained school as well as inheriting a deficit.
The solution – DfE to help with deficit
The Government has considered this issue and on 2 July 2013 the Secretary of State for Education, Michael Gove, laid a parliamentary minute and written ministerial statement in the House of Commons and Lords. This set out details of a guarantee that any outstanding LGPS liabilities on academy closure will be met by the Department for Education.
This should give administering authorities the confidence needed to treat academies equitably, particular in relation to employer contribution rates. The Department for Education take the view that the likelihood of an academy closing is low. If an academy closes, it is anticipate that a new provider would be appointed to continue the provision of education and operate the academy, taking on any LGPS liabilities. However, the guarantee will mean that if an academy does close, any deficit owing to the LGPS at that time will first be met from the available assets of the academy and otherwise would be met by the Department for Education.
The Treasury has approved the guarantee in principle and it is expected that it will come into force on 18 July 2013, subject to any objection in Parliament.
Administering Authorities to review policies
Once the guarantee is in place, the Government expects administering authorities to review their policies and how they assess the contribution rates payable by academies, as part of the latest triennial actuarial valuation of the LGPS, which is currently underway. There is no planned end date to this guarantee. Reassessment will be undertaken at regular intervals to determine whether the guarantee is still affordable.
Over the coming months there are likely to be further developments, as well as the changes to the LGPS itself as part of the wider reform of public sector pension schemes. The Department for Community and Local Government (DCLG) responsible for the LGPS, is due to launch a consultation over the summer on possible pooling arrangements in the LGPS.
DfE is encouraging academies to contact their LGPS administering authorities after 18 July to ask that their risk assessments be reviewed. The DfE guidance note can be found here.
We are seeking to setup an open forum, in conjunction with KPMG, whereby schools can discuss in more detail the implications of this development with pensions experts.
If you would like to attend this forum, would like further information in relation to the Government’s guarantee and to discuss the impact for your school or academy, please contact Tony McPhillips on 0191 211 7908.