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Laura Caudwell |
Laura Caudwell examines how proposed LGPS reforms on pension age protections, councillor access, academy consolidation and Fair Deal create complexity alongside fairness
The recent consultation on LGPS Normal Minimum Pension Age protections, Academy consolidation and New Fair Deal bring welcome change to improve “fairness” to members – but also real complexity for administering authorities, employers and contractors.
The consultation proposes that LGPS members with a Protected Pension Age (PPA) should retain the right to take benefits below the new NMPA of age 57, in line with the 2022 Finance Act. This is logical and fair from a policy standpoint but potentially challenging for administering authorities.
It will require new data fields and system changes to capture PPAs, revised processes, and updated member communications, all landing on teams already dealing with Access and Fairness reforms, the McCloud remedy, and pensions dashboards.
There are also member concerns. Where individuals do not qualify for a PPA in the LGPS but have transferred in benefits from an arrangement that would otherwise have retained a PPA, those rights will not keep their PPA in the LGPS.
The government argues that extending PPAs to transferred in benefits would be complex and costly. That is undoubtedly true, but the LGPS has already seen significant and expensive redesigns driven by external factors (such as McCloud), where similar proportionality arguments were initially made.
The consultation proposes giving mayors and councillors in England access to the LGPS, broadly aligning with the other three home nations.
However, allowing English councillors into the 2014 LGPS while Welsh councillors remain in the older 1997 version, with its lower accrual rate, risks a new disparity – as highlighted in the SPP’s recent consultation response.
In addition, with no extra central funding, the estimated additional annual cost of between £40 million and £45 million will need to be met from existing local budgets.
The government proposes to streamline the application process for employers, notably multi-academy trusts (MATs), who wish to consolidate participation across multiple LGPS funds into a single LGPS fund.
Whilst the majority of MATs run schools within a local area, some operate across boundaries with some schools in a different LGPS fund. Decisions on moving funds will now be taken locally, without Secretary of State approval, where certain conditions are met.
Proposed criteria are intended to support sensible, strategic consolidation – but only where it is properly evidenced and understood.
Employers will need to prepare a robust “value for money” assessment that must favour the consolidation. Independent specialist advice will often be needed to avoid underestimating costs or overlooking risks.
My view is that government guidance should also recognise that non-financial factors can legitimately outweigh higher costs. Improved member communications, better alignment with an employer’s geographical or cultural footprint (for example, Welsh language provision), or simpler governance can all represent real value.
A second guardrail is that the receiving fund must already have a relationship with the employer. This is a sensible control as it discourages “contribution rate shopping” where employers chase lower contribution rates.
Some funds may actively encourage consolidation if their aim is to increase fund size and attract positive cashflow, potentially creating greater flexibility in investment strategy.
However, creating a “market” in which employers choose their LGPS fund could disrupt administration and governance, and leave some funds with more mature profiles and greater cashflow challenges.
This rightly concerns authorised administrators (AAs) and could result in them withholding the required approval through fear of setting a precedent. Without AA agreement, the decision falls back to Secretary of State approval, so it will be interesting to see how effective these proposals will be at circumventing that process.
Perhaps the most challenging element is the proposed recasting of New Fair Deal for the LGPS, which aims to improve protections for outsourced staff, address perceived shortfalls with the current admission body process, and remove options to use a broadly comparable scheme.
Government last consulted on this in 2019 but those proposals needed significant refinements to be workable in practice. Government has spent a lot of time back at the drawing board, and new proposals build on the 2019 ideas.
The proposed changes aim to:
However, AAs have been waiting for New Fair Deal for many years and, in typical LGPS fashion, officers with their advisers have developed their own ways to tackle some of the challenges of the admission body route, by using passthrough by default, and improving communications.
Unfortunately, the new proposals do not fully resolve existing outsourcing challenges and could introduce further complexity. Challenges remain:
Overall, the government’s proposals introduce some important improvements for LGPS AAs, members and employers, but also significant challenges – with much of the burden falling on AAs already under pressure from previous and parallel reforms on governance, pooling, equality of benefits, along with wider local government restructuring.
Consistent with the government’s governance proposals in another ongoing consultation (Fit for the Future), it is critical that LGPS senior officers and pension committees fully understand the scale and impact of these reforms, so they can ensure adequate resources are in place to effectively navigate what lies ahead.
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