Agenda item

Report of the Director of Corporate Services

The Committee were informed that the Local Government Pension Scheme Regulations 2013 were amended in 2018 to allow exit credits to be paid for the first time. The changes came into effect on 14 May 2018.

These changes meant that when an employer ceased to be a participating employer in the Local Government Pension Scheme (LGPS), an exit credit became due if their pension liabilities had been overfunded at their date of exit. Previously any ‘surplus’ had been retained by the Pension Fund and reallocated to the letting employer’s notional assets.  Unfortunately, the amendment to the Regulations resulted in some significant exit credit payments being made by several Local Authority Pension Funds. These were unexpected, as they had not been factored in at the outset, where contracts were often let 100% funded. And in some cases, due to external factors, such as high investment returns over the period of the contract, exit credit payments were quite significant. Exit credit payments might also have exceeded the level of contributions actually paid in.

Following an MHCLG consultation in May 2019, updated regulations with respect to exit credit payments came into force on 20 March 2020. These had effect from 14 May 2018. The new regulations required the administering authorities of LGPS pension funds to determine, at their discretion, the amount of any exit credit payment due, having regard to any relevant considerations.  The new responsibility placed on the administering authority for determining the level of any exit credit, and the discretion available, made it essential that the Pension Fund adopts a fair and reasonable exit credits policy which:

•   ensures that a consistent approach is taken between employers and over time;

•   aims to protect the interests of the members and employers as a whole;

•   ensures that representations from all interested parties are taken into account;

•   is consistent with the approach set out in the Fund’s Funding Strategy Statement and other associated policies; and 

•   takes into account relevant actuarial and legal advice.

The Committee considered the Staffordshire Pension Fund draft Exits Credits Policy (attached as Appendix 2 to the report).

The Committee noted that the Fund’s Actuary, Hymans Robertson had reviewed the draft Exit Credits Policy and their views had been incorporated. However, given the potential impact the Exit Credits Policy might have on participating Scheme Employers, it was considered appropriate to consult with them on the Fund’s approach. Following Pensions Committee approval of the draft Exit Credits Policy, it would be published on the Latest News page on the Fund’s website, for consultation throughout January 2021. An email would also be sent to Scheme Employers alerting them of such and finally, the consultation would be referenced in the Employer Focus Newsletter. 

Should there be any queries or comments arising from the consultation that result in a significant change being proposed to the Exit Credits Policy, then further approval may need to be sought from the Committee. Where only minor changes were proposed, the Committee were asked to delegate the approval of these to the Director of Corporate Services, in consultation with the Chair.

The Director added that, once a final version was approved, the Fund’s Funding Strategy Statement (FSS) would need to be updated to reflect the terms of the Exit Credits Policy and an updated FSS, which also reflected other recent changes, such as inter valuation contribution level reviews, would be presented to Committee for approval in due course.

RESOLVED – (a) That the draft Exit Credits Policy for the Staffordshire Pension Fund, (as set out in Appendix 2 to the report) be approved.

(b) That the need for wider consultation with Scheme Employers be noted and that it be agreed that, following a suitable period of consultation, any minor changes to the Exit Credits Policy be approved by the Director of Corporate Services, in consultation with the Chair.