What do I need to know?
Important information from the LGPS
In conjunction with the Department for Communities and Local Government and the Department for Education, the Local Government Association has published “Local Government Pension Scheme – arrangements for academies”. This is intended for schools considering conversion to academy status, academy trusts, multi-academy trusts and administering authorities.
Contents of the paper include:
- Guidance for academy trusts on preparing to be an LGPS employer
- Their role and responsibilities post conversion
- The position of multi-academy trusts in the scheme
- Pooling arrangements
- Understanding scheme deficits
- Outsourcing services
- The Department for Education guarantee and academy re-brokerage
Although the advice given in the paper is intended to have wide application across the 79 LGPS funds in England, some variation in policy and approach across all the funds and their advisers is inevitable.
Important information from Cheshire Pension Fund
Schools in Cheshire seeking academy status will find the links below helpful in providing information on the pension implications of becoming an academy.
To ensure the smooth transition for an academy entering into the pension fund it is essential that the pension fund is informed of the intention to convert as early as possible.
Staffing information should be submitted to the pension fund by the school (using the pro-forma template in the attached Academy Admission Statement) as early as possible. The fund will use this staffing information to reconcile the members’ pension records prior to the conversion taking place.
Once the conversion has been approved and the transfer date is known the academy needs to confirm the details of the staff who actually TUPE transferred to the academy. The pension fund will use this information to transfer the members’ pension records to reflect the academy as their new employer. The liability and responsibility for the funding of your employees’ pension will then pass to the academy.
On conversion to academy status an actuarial assessment will take place. This is based on the membership profile of your employees. The information you provide for the members in the Academy Admission Statement will be used to ensure complete and accurate data is provided to the actuary for the assessment.
If you are forming or joining a Multi Academy Trust, each school will be set up and the pension position tracked on an individual basis. This is so any future changes within the Multi Academy Trust for example schools joining or leaving the trust will not have an impact on your individual school. It may also be necessary for the ‘head office’ of the trust to be set up as a separate employer in the pension fund.
As a standalone employer you will inherit pension scheme liabilities based on the membership profile of your employees and the current funding level of your Local Authority and the academy will become responsible for funding these liabilities.
The levels of assets that are notionally transferred are calculated based on the funding level of your Local Authority at the date of conversion. Currently the level of assets in the pension fund is insufficient to cover the amount of liabilities therefore as a result of the shortfall the academies opening position will be a pension deficit.
When performing their assessment the actuary will also calculate a standalone employer contribution rate that should, all things being equal ensure that the pension deficit is repaid over a 20 year period. This individual rate could be higher or lower than the Local Authority rate due a number of reasons, demographic profiles of staff, size of payroll relative to pension liabilities, funding position at date of transfer etc.
If this individual academy rate is higher/ lower than the Local Authority rate, the contributions in the first financial year after conversion will remain the same as the Local Authority rate. But in subsequent years (from 1 April) your rate will increase/ decrease at the same annual pace of change as the Local Authority.
These annual increases/ decreases will then continue in subsequent years (from 1 April) until you have reached your standalone employer rate.
This is to meet the Department for Education’s and Department for Communities and Local Government’s objectives that academy’s pension costs are treated the same as mainstream schools pension costs.
The pension fund is subject to an Actuarial valuation every three years. The fund’s liabilities and assets are re-assessed at this time and the employer contribution rates set for the following three years.
Valuation date implementation date for revised contribution rates are:
As a standalone employer in the pension fund you have responsibilities as laid out in the scheme regulations. Adherence to these responsibilities will enable Cheshire Pension Fund to effectively administer the pension scheme. They are:
- Determine membership eligibility and provide the pension fund with the relevant notification.
- Determine employees’ contribution rates in accordance with the regulations; make the deductions and payment of the contributions to the pension fund within the time periods set out in the Occupational Pension Schemes (Scheme Administration) Regulations 1996.
- Inform the pension fund of changes to member’s circumstances.
- Inform the pension fund of leavers from the pension fund and provide the relevant information.
- Provide the pension fund with year-end information.
- Provide details of any changes to the organisation that may impact funding matters including the outsourcing of services.
- Publish a policy on any employer discretions required by the LGPS regulations.
- Appoint a specified person to hear 1st stage Internal Dispute Resolution Procedure (IDRP) appeals. More details on the administrative process can be found in the New Employer Guide along with a suite of forms for completion.
There will be an actuarial cost for setting up a new academy in the Fund and calculating an opening balance sheet position. Actuarial fees will also be incurred if you require an actuarial report (FRS17) for the inclusion of pension costs in your accounts. Please contact the Fund for current charges.
Contribution payments for both employee and employers are due at the relevant rate by the 19th of the month following deduction. If there is a late payment interest may be charged in line with the pension scheme regulations.
Other Pension Costs
It is important to understand what pension costs the academy will be responsible for meeting as an employer in the pension fund. Some of the costs will be direct and others indirect.
Pension Strain Costs
Pension strain costs occur when a member draws their benefits earlier that their state pension age. The costs are based on the individual members profile and circumstance at the point of receiving their benefits. It is suggested you contact the pension fund for an estimate prior to agreeing the release of a pension early. These charges will be invoiced directly.
Increase a members’ pension
If an academy uses their discretion to increase a member’s pension, the cost will need to be met by the academy and will be invoiced directly.
Waiving an actuarial reduction
If an academy uses their discretion to waive a reduction on a member’s pension, the cost will need to be met by the academy and will be invoiced directly.
Ill Health Retirement costs
Ill health retirement can have a significant financial impact on an employer as benefits are paid early with potentially large enhancements of service. The cost of this is either, identified at the triennial valuation of the Fund and recharged back to the academy via the contribution rate or, similar to the early retirement strain cost above, required to be paid as a one-off payment.
To mitigate against ill health retirement risk, an ill health liability insurance (through Legal and General) is available to employers within the Cheshire Pension Fund. This is cost neutral for an employer as the fund’s actuary has agreed that any premium paid for the insurance can be offset by a reduction in the contribution rate of an equivalent amount.
Academy Employers who use an external provider for their payroll and/or HR functions can follow the link below to see our agreed protocols for dealing with LGPS processes
Employer / Payroll Provider / Pension Fund Protocol
|Issue Pension Scheme options and booklet||Employer function. Available for downloading from Cheshire Pension Fund website.|
|Opt out form received in pensions||Opt out form should be sent direct from member to employer, if it is received by pensions, pensions to send to employer. Employer retains form and notifies payroll provider of employee’s decision to opt out. Refund of contributions made via payroll if less than 3 months membership. Refund paid by pensions if over 3 months and less than 2 years – See leaver process.|
|Opt out form received by payroll provider||Payroll provider MUST send opt out form to employer. It is the employer’s responsibility for notifying pensions of the employee’s decision to opt out. Refund of contributions made via payroll if less than 3 months membership. Refund paid by pensions if over 3 months and less than 2 years.|
|Opt out form received by employer||Employer notifies both pensions and payroll provider of the employee’s decision to opt out. Refund of contributions made via payroll if less than 3 months membership. Refund paid by pensions if over 3 months and less than 2 years.|
|Opt in received by pensions||Pensions send direct to employer who informs their payroll provider. Either payroll provider or employer informs pensions of new starter, must be verified by an authorised signatory unless electronic interface has been pre agreed.|
|Opt in received by payroll provider||Payroll provider issues starter information to pensions and forwards the opt in form to employer.|
|Opt in received by employer||Opt in retained by employer who notifies payroll provider. Either payroll provider or employer informs pensions of new starter, must be verified by an authorised signatory unless electronic interface has already been agreed.|
|New starters & Hour changes||Employer notifies payroll provider. Either payroll provider or employer informs pensions of new starter or amendment; must be verified by an authorised signatory unless electronic interface has already been agreed. Any queries will be directed to the employer.|
|Service history queries||Pensions send request to employer in all cases irrespective of when the period of membership relates to. Employer resolves with relevant payroll provider. Authorised signatory responds directly to pensions.|
|Maternity/ Paternity/ Adoption leave||Employer completes and returns pensions MA1, 2 and 3 forms.|
|Leavers (including over 3 month opt outs i.e. been a member of the scheme for more than 3 months but then opted out)||Employer informs payroll provider who calculate final pensionable/CARE pay and sends it to employer. Employer sends leaver form (including final pensionable/CARE pay) to pensions.|
|Retirements – Age/ Ill Health||Employer request final pensionable/CARE pay from payroll provider. Employer requests estimate from pensions using an estimate request form. Pensions calculate estimate and sends it to employer along with any non-standard option forms. Employer issues pension pack with required forms and estimate to member. Member completes and returns forms to their employer. Employer sends leaver form, final pensionable/CARE pay and member forms and certificates to pensions. Pension’s process and pay retirement benefits.|
|Redundancy/ Efficiency Retirements||Employer request final pensionable/CARE pay from payroll provider. Employer requests estimate from pensions using an estimate request form. Pensions calculate estimate and sends it to employer along with any non-standard option forms. Employer issues pension pack with required forms and estimate to member. Member completes and returns forms to their employer. Employer sends leaver form, final pensionable/CARE pay and member forms and certificates to pensions. Pension’s process and pay retirement benefits.|
|Flexible Retirement||Employer to liaise with pensions for costing estimate. Employer requests final pensionable/CARE pay from payroll provider. Employer requests estimate from pensions using an estimate request form. Pensions calculate estimate and sends it to employer. Employer issues pensions pack with estimate to member. Member completes and returns forms to employer. Employer sends leaver form, final pensionable/CARE pay and member forms and certificates to pensions. Pension’s process and pay retirement benefits. New Starter or opt-out process applies for on-going employment depending on member’s decision|
|Year End Process||Pensions issue end of year reporting requirements (LGS50/A) to employer. Payroll provider sends LGS50 report to the employer for sign off. Employer sends LGS50 and signed 50A to Pensions.|