By Julie West, Actuary and Head of LGPS Employer Services at Hymans Robertson
There are a number of reasons why you should review your current LGPS arrangement:
2022 Valuations
First of all, for any English and Welsh employers, a formal valuation of your LGPS fund will take place next year. The output from that valuation will be a review of the contributions you pay to the Fund. In preparation for that exercise, now is the time to be reviewing your LGPS arrangements – is it affordable for you and what options do you have?
New flexibilities for employers
For those employers that are able to leave the LGPS, new flexibilities were introduced last year which provide more options to support employers in managing any exit payments. Previously, employers may have found themselves in the position where the LGPS was too expensive to stay in and too expensive to leave. If you have had this experience, or are considering alternative pension provisions, you should explore these new flexibilities and how they can work for you.
The change in regulations also introduced the option for a review of employer contributions between valuations. If your organisation has had a change in circumstance, like a significant change in workforce, or finances, then this type of review may be worth considering. Get in touch with me to find out more.
Employer affordability
From experiences of working with LGPS funds, we know that many employers find meeting the cost of their LGPS contributions challenging. Many employers may also have found their finances further stretched by the impact of the COVID-19 pandemic.
If you have concerns over the ongoing affordability of the LGPS, you should consider a review of your pension arrangements to consider what options you may have for managing costs.
Employee choice
While the LGPS provides a valuable benefit for your staff, do your staff appreciate its value? Is it the right choice for your employees? We hear frequently from LGPS employers that their staff don’t understand the LGPS benefits, and definitely don’t appreciate how much their employer contributes on their behalf.
Defined contribution pension provision may be much more familiar to your employees, depending on their employment background, and offers greater flexibility in terms of employee contributions, and use of the pension savings at retirement.
It is worth considering what pension provision is best suited to your workforce to make sure you, as an employer, get maximum value for the money you contribute.
Risk management
Any well-run organisation regularly reviews the risks it is exposed to, and providing the LGPS to employees should be considered as part of any risk review. As an LGPS employer, you are exposed to risk of contribution rate increases, along with investment risk on the money invested on your behalf.
There has also been significant regulatory change recently, the McCloud judgement being one example, leading to an increase in the benefits earned by some members.
As an employer you should consider whether the risk of LGPS participation is one that can be sustained by your organisation, and what you can do to manage those risks.
Is now the right time to review?
Whether you’re struggling with affordability; considering how sustainable participating in the LGPS may be for your business; or have decided to leave the LGPS, we can offer help, advice and in-depth analysis of your own circumstances, to help inform your future decision-making.
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