Thinking of exiting the LGPS
Exit costs are paid when you cease to participate in the scheme, and have the potential to be very high. You are deemed to exit the scheme, known as a ‘cessation event’, when:
- the commercial contract has ended;
- Your last ‘active’ member (ie. members that are still accruing benefits) leaves the scheme;or
- You undergo an insolvency event so no longer employ any active members in the scheme.
There are also some situations where a corporate restructure (eg. a merger or an acquisition) results in an effective cessation event, because a new entity employs the members.
Where there is no successor body agreeing to take on the liabilities or, no guarantor in place, cessation or exit debts are generally calculated using more cautious assumptions (known as a risk-free basis) than the basis used to calculate the cost of providing pensions for your employees, resulting in higher liabilities. This basis is employed to minimise the risk that deficits attributable to members of departing employers inadvertently fall onto other employers known as orphan liabilities.