Charities that have invested in the Local Government Pension Scheme need to be aware of some of the potential risks it poses, including possible increases in contributions and exit debts, new guidance has warned.
The Pensions and Lifetime Savings Association has today released two guides to the LGPS, one an introduction to the scheme, the other about navigating entry to the LGPS, to help employers, such as charities, understand how the scheme works and some of the risks involved.
The LGPS is a defined-benefit scheme for employees working in local government, which that members of the scheme are guaranteed pension income in retirement and the financial risk of the scheme’s investment falls on the employer.
Although there are no official statistics on the number of charities signed up to the LGPS, thousands of charities across England and Wales are members.
The LGPS is funded through the contributions of all participating employers and employees, with the local administering authority acting as the scheme manager. This means it is responsible for investing and managing LGPS assets, setting contribution rates and collecting employer and employee contributions and paying pension benefits as they fall due.
The PLSA guides set out a number of the risks that LGPS members face, including increases in contributions and exit debts after departure from the scheme.
It says charities included in the LGPS will have to monitor these risks in the context of their existing financial situation and workforce structure, and whether any guarantor provisions are in place.
The guides set out several ways charities can mitigate the risks from the LGPS through the commercial contract and admission agreement for the scheme, including isolating themselves from funding risks by not taking on the responsibility for any past service liability accrued before the start of the contract.
Other recommendations include having liabilities dealt with on a consistent basis on joining and exiting the scheme to avoid unexpected exit costs.
Joanne Segars, chief executive of the PLSA, said: "The LGPS is the largest public sector pension scheme in the UK and provides some fantastic benefits for its members. But for employers participating in the LGPS there are significant legal, financial and administrative obligations that can cause a real headache. Many are beginning to question whether they can even afford to stay in the scheme.
"This is why the PLSA is launching a new series of guides to help employers gain a better understanding of their duties as part of the LGPS and what they can do to help manage the issues. It’s vital we support these employers to offer their employees the best possible access to saving for retirement."