Local Government Pension Scheme employer base review – Tier 3 update

15 March 2019

The Local Government Pension Scheme Advisory Board has been conducting a review of the treatment of Tier 3 employers across all UK funds. Our pensions advisers KPMG provide an update on progress.

The housing sector has recognised for a long time that the Local Government Pension Scheme (LGPS) approach to setting contribution rates and exit payments is inconsistent across funds and does not always allow for the financial strength of individual housing associations. This extends to grouping the sector with other sectors in the scheme (such as further education), many of which do not have the strength of covenant that the housing sector offers.

Whilst an LGPS fund is likely to treat tax-raising bodies such as local authorities as having a very strong covenant, and other scheduled bodies (those required under regulation to provide LGPS to employees) in a similar way,  “Admitted Body” employers are often treated en masse as having a higher risk of defaulting. This leads to a very prudent treatment at any actuarial valuation – whether to calculate ongoing contributions or to determine the treatment on, say, closure to new accrual. 

To address some of these concerns – and many others raised by employers, members and funds themselves – Aon Hewitt were asked by the LGPS Advisory Board to carry out a review of the treatment of Tier 3 employers across all UK LGPS funds. The report has been issued and lists a large number of options, which are now being considered by the Advisory Board via a working group put in place. 

The National Housing Federation fully engaged on behalf of the sector during the review, and we hosted a number of listening groups with employers and Aon, as well as having a place on the working group. We will be putting forward our views on what the top six to eight priorities should be to take forward – all in line with our stated priorities: consistency, transparency, flexibility, effective engagement.

The 2019 LGPS valuation is coming up fast and many employers will have already prepared the way by carrying out an assessment of possible outcomes and the areas where they can exert influence over their own individual results. The approach taken to the valuation will depend on the particular fund but employers can seek out their fund’s timetable and fully engage with the consultation process. 

This will sometimes require proactive steps to avoid being asked to consult too late in the process to achieve any real change. We have issued a series of bulletins which cover planning, investment, covenant, funding, valuation cycle, regulatory, data and participation. We will keep you informed as the project progresses.