Planned rule changes to the Scottish LGPS will assist charities in managing their pension liabilities
Find out about planned rule changes to the Scottish LGPS that will help charities manage their pension liabilities
The Scottish Public Pensions Agency (SPPA) is currently considering consultation responses on changes to the Local Government Pension Scheme (LGPS) (Scotland) Regulations 2018, including plans to enable Deferred Debt Agreements (DDAs) to be established between scheme funds and sponsoring employers.
ICAS responded to the consultation in support of the proposed introduction of Deferred Debt Agreements (DDAs).
What are DDAs?
DDAs allow sponsoring employers to defer any exit payment and to carry on participating in the Scottish LGPS on an on-going basis without any active members.
Under DDAs, employers are better able to manage liabilities already built up in the scheme without building up any additional ones. Sponsoring employers also continue to benefit from investment returns and favourable member movements that could reduce the ultimate cost of providing benefits.
The changes will give Community Admission Bodies (CABs), including the many charity employers participating in the Scottish LGPS, the potential to enter a DDA in circumstances where this is judged to be necessary to keep the employer on a financially sustainable footing.
While immediate costs to the employer are likely to be lower under a DDA - and therefore much more affordable - regular valuations do need to be carried out and payments due under DDAs adjusted, if necessary, subject to any affordability constraints.
This approach is fair to other employers in the scheme as under a DDA an employer would retain all of its obligations to the scheme.
The proposed changes would bring the 2018 Regulations into line with recent amendments to the LGPS Regulations 2013, which apply in England and Wales, and with the Occupational Pension Schemes (Employer Debt) Regulations 2005, which were amended in 2018 to introduce DDAs for private sector multi-employer schemes.
Scottish Scheme Advisory Board guidance
At its August 2021 meeting, the Scottish Scheme Advisory Board (SAB) set out plans to issue guidance to scheme funds to ensure that sponsoring employers as a whole are treated in a fair and transparent way and that each fund’s funding strategy statement would include further detail about:
- Steps to permit transfers of staff between scheme funds as a pragmatic solution to cessation issues.
- Proportionate steps for identifying historic liabilities, relevant to a CAB’s specific admission agreement and exit plan.
- Their approach to using the 90-day stability option, which would fix cessation valuations for that period of time (once the stability option becomes available under the amended 2018 regulations).
ICAS welcomes these plans and the SAB’s plan to ask administering local authorities to engage with CABs, on request, as to the extent and limitations of any guarantees relating to their pension liabilities, so CABs are aware of the outcome of leaving a scheme fund before any decision is made.
The SAB is responsible for providing advice to the Scottish Ministers on the desirability of changes to the Scottish LGPS. It also provides advice to the scheme managers and pension boards in relation to the effective and efficient administration and management of the scheme.
Other proposed rule changes
The consultation on amendments to the 2018 regulations also covered proposed changes to early retirement, the benefit underpin enacted in 2015, survivor benefits and the LGPS cost cap.
The consultation closed on 21 January 2022.