Academies and the Local Government Pension Scheme

Issue Date April 2017 Version 1.1 Academies and the Local Government Pension Scheme This leaflet provides guidance relating to the role and responsibilities of a Scheme employer in the Local Government Pension Scheme (LGPS) Introduction and LGPS Legal Requirements - Page 1 Section 1 - The implications of converting to an Academy and becoming an employer in the LGPS - Page 3 Administration Record keeping Accounting for Pension Liabilities Triennial Valuation What can affect your Employer Contribution rate going forward? Other potential pension costs to consider Set-up Costs Section 2 -Key areas of responsibilities as a new Scheme employer - Page 6 Relevant legislation Administration Setting-up and maintaining membership records for Scheme members Notification required when a Scheme member leaves or dies in service Scheme contributions Remittance of Scheme contributions Other duties and responsibilities as a Scheme Employer Other useful information Pensions Administration Strategy Statement 1

Introduction This guide is for schools whose employees are members of the Local Government Pension Scheme (LGPS) and participate in the Shropshire County Pension Fund, administered by Shropshire Council. Following the introduction of the Academies Act 2010, schools have the opportunity to become independent from their Local Education Authority (LEA), and assume responsibility for their own finances. This responsibility allows Academies to set the pay and conditions for their staff, and maintain pension provision. The statutory requirements of the LGPS raise a number of considerations and obligations that the school should be aware of in relation to the continuity of pension provision under the LGPS for Scheme members, after conversion to Academy Status. The Pensions Team is available to provide advice on the LGPS requirements throughout the conversion process, of becoming a Scheme employer. Support can also be provided through training delivered to non-teaching school staff affected by the conversion to Academy status and any of your staff involved in liaising with the Fund around the administration of the LGPS. Local Government Pension Scheme (LGPS) Legal Requirements Upon achieving Academy status under the Academies Act 2010, the school is no longer funded through the local authority and it will automatically be a separate Scheme Employer as listed in Part 1 of Schedule 2 of the Local Government Pension Scheme Regulations 2013. All non-teaching staff (including new employees) have a legal right to become members of the LGPS. At the date of conversion to Academy status, all existing members of the LGPS who transfer over to the Academy will have continuity of membership in the LGPS. Any non-pensionable eligible employees will need to be enrolled automatically at date of conversion. All future non-teaching staff appointments carry contractual eligibility to be a member of the LGPS and must be enrolled into the Scheme. The Academy has no discretion to provide alternative pension arrangements for their employees who are eligible to be members of the LGPS. 2

Section One: The implications of being an Employer in the LGPS when converting to an Academy. Administration The new Academy is required to formulate and publish a statement of how, as a Scheme employer, it would apply certain discretions allowed by the 2013 Regulations and related discretionary compensatory legislation. As a new employer you may well decide to exercise the discretions differently to the Local Authority. You can find the full list of employer discretions at: http://www.lgpsregs.org/index.php/guides/administration-guides-to-the-2014-scheme It is also required to ensure procedures are in place to ensure all data required, by the 2013 regulations, is passed to the Pensions Team accurately and on time. Record keeping Each Scheme employer is responsible for the accuracy of its employees pension records to ensure that the correct level of members benefit entitlement may be determined. If the new Academy chooses to continue using Shropshire Council (if a former Shropshire School) or Telford & Wrekin Council (if a former Telford & Wrekin School) as their payroll/hr provider, this should not be an issue as the Pensions Team should continue to receive all data currently being provided by your local authority payroll team, but it is re commended that you ensure your contract covers this. The Academy has a responsibility to inform the Pensions Team of the following and ensure the correct contributions are paid on a monthly basis: Starters Leavers All member data changes on a monthly basis Monthly contribution return for all members Monthly payment of pension contributions balanced to the monthly contribution return Year End balance report and Annual data return for all members NB. On conversion to an academy the existing staff who are not in the LGPS will be automatically enrolled into the pension scheme from the date of the academy conversion. As this will be a change arising from the change of status of your school, you should notify the affected staff as part of your change process. Members can opt-out of the LGPS at any time after joining the Scheme but not before, and can only access opt-out forms from the Pension s Team not you the employer. Automatic enrolment to LGPS would not apply, as described above to employees contributing to an existing pension arrangement that operated if the academy was, previously a private independent school. Past Service Liability / LGPS Employer Contribution Rate The liabilities attributed to the pensions that have already built up for your employees, 3

who are members of the LGPS, will become the responsibility of the Academy at the date of conversion. In essence the Academy will inherit the past service pension liabilities for all non-teaching staff. As a new Scheme employer, the Academy will have its own employer s contribution rate which may be different to the rate applicable when they were part of the local authority. A Multi Academy Trust can choose to have one Employer contribution rate for the Trust as a whole and be treated as one employer or have separate Employer contribution rates for each school within the Trust. A proportion of any deficit carried by the Fund will be transferred to the Academy when they become a stand-alone employer. The deficit is recovered in the form of a lump sum payment, usually on a monthly basis. The calculation of the employer rate and proportion of deficit to transfer to the Academy will be undertaken by the Shropshire Pension Fund s Actuary. This information takes a minimum of 4 weeks for the Actuary to turnaround. You therefore need to contact the Pensions Services early on when thinking of becoming an academy to obtain all the information you require. In order to calculate the Academy s pension contribution rate, the pension fund will require certain data regarding all the non-teaching employees that will transfer to the Academy. A template spreadsheet, with all the required information, can be provided by the Pensions Team. You will need to contact you payroll provider to find out their turnaround around for providing this information. The Actuary s fee for providing this information will be recharged to the School. The fee can be variable and is dependent on the number of employees. Please see set up cost section for more details. The Academy will be responsible for all employer contributions payable, including any sums due in respect of outstanding liabilities should the school cease to operate under Academy status. The Academy will also be responsible for signing off the monthly and yearly remittance of both employer and employee contributions to the Shropshire County Pension Fund, no matter who provides your payroll. Accounting for Pension Liabilities Each new Academy will be required to produce an annual report in accordance with the appropriate accounting standards you are working too, (known currently as FRS17 or IAS19). An assessment of pension liabilities under the LGPS will be required. This report is usually produced to tie in with the tax year end accounts and the new Academy will therefore need to check with the auditor and accountant when the first actuarial report is required for inclusion in their first final accounts. There is a charge for the provision of this statement see set up costs. Triennial Valuation The Fund s actuary reviews and amends employer contribution rates every 3 years. The Actuary analyses scheme membership by type, assesses the Fund s financial position (i.e. are the Fund s assets sufficient to meets its projected liabilities), sets out the assumptions for future inflation and investment returns and then provides a 4

schedule of the contribution rates for each for the Fund s employing bodies for the next three years. A Valuation was recently undertaken as at 31 March 2016, with the next Valuation due to take place at 31 March 2019. What can affect your Employer Contribution rate going forward? At each valuation the Actuary uses certain assumptions, if your experience differs from these assumptions then this can affect your individual employer contribution rate, for example; greater than expected salary increases. The assumptions the actuary made, at the last valuation, can be found in the latest valuation report on the website. Other potential pension costs to consider Whilst budgeting for the employer contribution rate and deficit payments may be relatively straightforward, there are other potential unforeseen pension costs which may not be as obvious, but which can have significant financial consequence. These are: Early Retirements Early retirements (excluding ill-health) normally have an up-front cost which is payable to the Fund in addition to the employer s normal contribution rate. This additional cost is known as the early payment strain on the fund and will be payable in full by the Academy as a one-off payment at the date of the members retirement. NB It is advisable for the Academy to contact the Pension Team for an estimate of the costs they may incur before taking any action to permit an employee to take early retirement. Early retirement is where an employee is permitted to take immediate payment of their benefits between age 55 to Normal Pension Age for example redundancy or flexible retirement. Ill-Health Retirement Where the retirement is for reasons of ill-health there is still an early payment strain cost payable in addition to the Academy s normal employer contributions. However, this cost will usually be factored into your Employer Contribution rate at the fund valuation. Although ill-health retirement is a cost factor when setting an Employer s contribution rate, this is not something that should be considered when determining an employee s ill-health retirement. Set-up Costs The setup cost incurred by the Fund in establishing the past service liabilities (the funding position) and Employer contribution rate will be recharged to the Academy. The likely fees charged for actuarial services to set up a new employer in the Fund could be between 2,000 and 5,000. The cost of preparing an FRS17 report would be around 2,000 and 3,000 for the first year and an annual fee thereafter, in the region of 1,100. 5

Section Two: Key areas of responsibilities as a new Scheme employer Shropshire Council is the administering authority responsible for the Shropshire County Pension Fund. In addition to Shropshire Council, Telford and Wrekin Council and Shropshire and Wrekin Fire Authority, the fund has over 130 other employers. A full list of Fund employers can be found on our website and by viewing the latest Annual Report. The Pension Fund is managed by the Pension Committee. This consists of elected representatives from the various councils, union representatives and a pensioner representative. It is with the Pension Services administration team that the Academy will have regular contact with regarding the day to day administrative maintenance of their employee pension member records. A school that has recently transferred from Local Authority control to Academy status must quickly understand the key areas of new responsibility they are undertaking as a new Scheme employer. Relevant legislation As the Fund s administering authority, Shropshire Council has certain statutory duties that govern the day-to-day operation of the LGPS. The main sets of regulations which set out these duties are: The Local Government Pension Scheme Regulations 2013 The Local Government Pension Scheme Regulations (Transitional Protections, Savings and Amendment) Regulations 2014 When a school is granted Academy status it becomes a Schedule 2, Part 1 Scheme employer under The Local Government Pension Scheme Regulations 2013. Administration Administration can be split into two levels for Scheme employers: Transactional processes i.e. dealing with the day-to-day paperwork for new Scheme members and for leavers, and the maintenance of member records. The higher level decision-making processes concerning the award of benefits, policy making (where employer discretions are allowed within the LGPS) and dealing with disputes concerning the award of benefits. Setting-up and maintaining membership records for Scheme members Pension Services are legally required to maintain up-to-date records relating to pay, service and personal details for all Scheme members, and each Scheme Employer is legally required to provide that information to the team. The processes in place to meet the requirements of the regulations are covered in the Administration Strategy Statement. A copy of which is available on our website. 6

However, below is a very brief overview of what is required of a Scheme employer: A) New Starters You must ensure that all eligible* non-teaching staff employed by the Academy are automatically admitted to the Scheme. Each new member should be issued with a New Member form, which should be completed by the member and forwarded to Pension Services. All new members must be provided with information about the Scheme and advised of their contribution rate, it is advisable that this information is provided in their employment contract. Pension Services have prepared a Brief Scheme Guide for employees eligible to participate in the Shropshire Pension Fund. It is available in both hard copy format (on request) and on the Fund website. * To be eligible to automatically join the LGPS, employees need to have a contract of employment for at least 3 months (although those with a contract of employment for less than 3 months can elect to join the scheme) and be under age 75. This applies to both permanent and temporary staff. You must ensure that Pension Services are notified of every new starter. B) Amendments to Scheme member details It is important that accurate records are maintained for each employee who is a Scheme member. Failure to do so could result in Pension Services calculating benefits incorrectly and this, in turn, could affect the employer s contribution rate. Since April 2015 the Pensions Regulator has oversight over compliance of the LGPS regulations therefore Scheme employers and Administering Authorities can receive fines for non-compliance. You should notify Pension Services of the following changes to employee s circumstances: change of name change of National Insurance number change of marital status change of address change of email address change in contribution rate (i.e. change of band) The following changes to employee s working conditions must be sent to the Pension Team: increase in hours decrease in hours change in working year - this would normally apply where salary is based on less than a full year as in the case of term time employees. 7

C) Leave of Absence You should tell Pension Services about: Unpaid ordinary maternity/adoption leave or unpaid additional maternity/adoption leave Unpaid paternity leave Unpaid authorized absence Authorized Absence Industrial Action Arrangements can be made for a member to pay for any unpaid authorized absence (Additional Pension Contributions) following a period of leave of absence, to avoid a loss of pension benefit. Where the employee elects to pay for a period of absence within thirty days of returning from the absence, the employer is required to pay a share the total cost. The employee pays for one third and the employer pays for two thirds. The employer is not required to share the cost if the employee does not elect within thirty days of returning from the absence or, for an absence in respect of industrial action. Any period of absence due to a trade dispute will be regarded as a break in LGPS membership. You must notify Pension Services of any authorized absence. D) Notification required when a Scheme member leaves or dies in service You must notify Pension Services when an employee leaves employment or ceases Scheme membership. The main occasions when this notification is required are as follows: i) Early Leavers When a member leaves employment or opts out of the LGPS, there are several pension options available to them. They can: take a refund of contributions (but only if they have less than 2 years membership and are not within 12 months of Normal Pension Age), transfer their membership to another pension provider, or take a deferred pension, retaining their benefits in the Fund The options available will depend on each individual s benefits of Scheme membership and whether they transferred membership into the Fund from another pension scheme. ii) Retirements Under the LGPS Regulations, a Scheme employer is responsible for determining the type of retirement benefit due to a Scheme member who retires. The Pensions Team can offer guidance on the different types of retirement, which are listed below: Normal Retirement (from age 60, each member has their own Normal Pension Age (NPA)) Late Retirement (after NPA) Early Retirement (from age 55) Flexible Retirement (from age 55 release of benefits whilst the member continues in employment but on reduced hours or grade Ill health Retirement (any age) 8

Where the retirement is for reason of ill health there are no upfront additional costs chargeable immediately as they are factored into the Academies employer contribution rate at each fund valuation. There is usually an early payment strain cost payable in the event of Early retirements on grounds of Redundancy, Efficiency or any other Early Retirement before age 60 including Flexible Retirement. In some cases (excluding Redundancy and Efficiency) some or all of this cost may be offset by reducing the benefit payable to the scheme member. If there will be an early payment cost, you will be expected to pay this cost to the Pension Fund prior to the employees retirement. Invoices will be sent by the Pension Fund Accountant. If you are planning to make redundancies or offer Early Retirement to any member of the scheme it is advisable that you contact Shropshire Pension Fund to ask for an estimate of benefits, which will include details of any additional costs. iii) Death of the Scheme member All death benefits due are determined by the deceased member s length of Scheme membership and the eligibility of dependents at the date of death. In the unfortunate event that a Scheme member dies whilst still in active employment, you will need to notify Pension Services immediately by completing the relevant form. It is important to encourage all members to complete an Expression of Wish Form and to keep it up-to-date. Members must sign and date the form before submitting it to Pension Services. iv) Scheme member opting out If a Scheme member wishes to opt out, they must notify the Academy by completing an opt-out form which is only available from Pensions Services. This form is available for them to complete online. A Scheme employer must not encourage a member to opt out of the pension Scheme. If the member has opted out within 3 months of first joining the Scheme, you are responsible for ensuring that your payroll provider returns any contributions paid by the member. Please note an opt-out form cannot be accepted if an employee completes and signs it before their employment start date. As individual employments are treated separately in the LGPS, members with multiple employments can opt out of individual employments if they wish but they do not have to opt out of all. E) Scheme contributions i) Determining the rate of Scheme contributions LGPS Scheme members pay contributions based on their actual annual earnings. Rates are banded, as shown in the table below. The appropriate contribution rate for members must be deducted at source from their pay, but how the banding policy is 9

administered is determined by the Scheme employer. Banding Rates applicable from April 2017 are: Contribution Band Range Rate 1 Up to 13,700 5.5% 2 13,701-21,400 5.8% 3 21,401-34,700 6.5% 4 34,701-43,900 6.8% 5 43,901-61,300 8.5% 6 61,301-86,800 9.9% 7 86,801-102,200 10.5% 8 102,201-153,300 11.4% 9 153,301 or more 12.5% The contribution bandings table is reviewed annually and the pensionable pay bands are increased in line with the Consumer Price Index (CPI). Academies must ensure the correct banding table is used so the correct employee deductions are taken each year. As a scheme employer, you should have a policy in place as to how often you intend to look at re-banding your employees in addition to the yearly adjustment. Such situations as a change of job, promotion/demotion, a regrading, a pay award or a change in contractual hours should be covered by your policy. Please refer to the HR guide on the website www.lgpsregs.org for guidance. ii) Right of Appeal Scheme members have a right to appeal to the Scheme employer against the banding that has been applied to their level of pay. iii) Employer contribution rate The Fund s actuary reviews and amends employer contribution rates every 3 years. You will be notified of the percentage rate in separate correspondence, sent to you by Pension Services. iv) Pensionable Pay Employee and employer Scheme contributions are payable in respect of Actual pensionable pay. Pensionable pay within the LGPS has two definitions based on regulations in place the 2008 and 2014 scheme definitions. v) Member has flexibility to pay less the new Option There are two sections in the scheme the main section and the 50/50 section. A member can elect for the 50/50 option at any time, pay half their normal contributions and build up half their normal pension. 10

Members should automatically default into the main section of the Scheme and they will pay main section contributions (shown in the table above) and get the normal pension build up. If they have more than one employment they can elect for the 50/50 option in one, some or all of their employments. The 50/50 section is designed to be a short-term option for when times are tough financially. As the employer you are required to re-enroll members back into the main section of the scheme on the anniversary of your Automatic Enrolment date or if they move into a period of no pay (i.e. sickness, injury or during a period of child related leave). You will need to inform members when this is if they are in the 50/50 section of the scheme. If a member wishes to continue in the 50/50 section at that point they would need to make another election to remain in that section. They can choose to revert back to the main section of the scheme at any time by informing you in writing and they will then start to build up full benefits in the main section from the start of the next available pay period. It is important to remember and instruct your payroll team to continue to deduct the employers contributions at the full rate when a member moves into the 50/50 section, these contributions do not reduce. F) Remittance of Scheme contributions i) Monthly Returns Payment of employee and employer pension scheme contributions is due, and must be paid on time, on a monthly basis. If your payroll provider is not Shropshire Council or Telford & Wrekin Council, then a monthly return spreadsheet, provided by the Pension Services, should be used. This is to notify Pension Services of the monthly remittance details of all members together with any adjustments e.g. refunded contributions for members who opt out, notification of leavers or new starters. Pension Fund policy requires that payment should arrive no later than the 19 th day of the month after which employees contributions were deducted. Late payment would attract interest and may be reported to the Pensions Regulator. On the monthly return form you must provide: your unique employer authority code (you will be notified of this in separate correspondence sent to you by Pension Services), Dates the information in the monthly return relates to your employer s contribution rate employee contributions within the different payment bands, a listing of any additional pension scheme contributions an employee has elected to make (these additional contributions should be combined within the monthly adjustment line), and a note of any adjustment for under or overpayments and collection of arrears, as appropriate. The date payments of Employee & Employer contributions are to be made Name & date to be added certifying the information in the monthly return is correct A draft monthly return template is available on the Fund s website in the section for 11

Employers. ii) How to make payment Employee and employer contributions should be paid monthly by BACS and should be made payable to: Shropshire Pension Fund using the following bank details: Sort Code: 55-50- 05 Account Number: 55730671 The payment must be accompanied by sufficient information to enable the payment source to be identified (i.e. your Academy name and employer code). iii) Year End Returns A year end return must be completed and returned to Pension Services at the end of each financial year. It is used to confirm that you have performed an annual reconciliation of the monthly contribution remittances made throughout the year, and that the annual totals represent a full and accurate account of both the employees and employer s contributions deducted. G) Other duties and responsibilities as a Scheme Employer i) Appointment of an independent registered medical practitioner If a Scheme employer is considering whether or not to allow payment of an ill health pension to a Scheme member, the LGPS Regulations require that the employer must first consider the opinion of an appropriately qualified independent registered medical practitioner. Pension Services has appointed a number of appropriately qualified independent medical practitioners who will perform this role and to whom all requests for the award of an ill health pension, must be referred. Their current details are listed on the Pension Fund website. ii) Employer Discretions Policy Statements Within the LGPS Regulations there are certain discretions which may be applied at the discretion of the Scheme employer. You must formulate and publish Policy Statements to show how you would use these discretionary powers. The Statements must be kept under review. Because a Policy is based on discretions, you retain the right to change it at any time. A Policy does not contain contractual rights and only that Policy, current at the time a relevant event occurs to the Scheme member, can be applied. Certain Scheme employer discretions must be included in a Policy Statement. These cover: Early and Flexible Retirement; Voluntary funding of additional pension, via a Shared Cost Additional Pension Contributions (APC); Awarding additional pension at whole cost to the employer; Switching on the rule of 85 year for member s voluntarily drawing benefits; Waiving actuarial reductions for early retirements 12

There are other discretions which do not need to be included in a Policy Statement, but you may find it helpful to do so. You should consider seeking legal or financial advice before constructing a Policy Statement, a guidance document is available from the Pensions Team to help you. You should ensure your Policy Statement is clear and unambiguous, having regard to any relevant overriding age and sex discrimination legislation to avoid any challenge or appeal. Make sure your LGPS members are aware of your Policy Statements. iii) FRS17 or IAS19 Following conversion to Academy status, you may want to arrange for the provision of pension figures for your accounts. This is currently covered by accounting standard FRS17 or IAS19. Pension Services understanding is that these figures are required for any set of statutory accounts prepared by an Academy. However, you will need to decide whether the FRS17 or IAS19 figures are required for inclusion in the Academy s end of-year accounts; check with your auditors if you are in any doubt. iv) Reporting to HMRC As an employer you need to report to HMRC and you may need to reference both the Employer and Scheme contracted-out numbers (ECON and SCON) when making your reports. These numbers will identify the Academy employees as being members of the LGPS administered by Shropshire Council. The ECON and SCON numbers are as follows: ECON 3900002R SCON 2700166X. Other Useful Information (H) Outsourcing services New Fair Deal guidance - On 4 October 2013, HM Treasury published guidance setting out a reformed Fair Deal policy setting out how pensions' issues are to be dealt with when staff are compulsorily transferred from the public sector to independent providers delivering public services. This guidance can be found on Gov.uk. Point 1.7 in this guidance confirms that it covers Academy Schools. If you are looking into outsourcing a service or function within your school, please be aware that before you do anything you need to check whether any employees, currently working on that service, will have a right to transfer to a new provider. Employees are protected by TUPE. Advice on TUPE should always be sought from your HR provider. If the staff are protected by TUPE their rights to be in the Local Government Pension Scheme are also protected and you must contact Pension Services for advice. The pension protection they have is far greater than that covered by TUPE and is enforceable by the staff. Advice must be sought as to possible costs before putting the service out to tender. Please be aware that if this is not done and pension protection is not covered the transfer cannot proceed. For further advice 13

please contact Pensions Services or check the information on the Pension Fund website; Existing Employer-letting a contract. Pension Fund website The Pension Fund website contains information about the LGPS for both Scheme employers and Scheme members and can be accessed at: www.shropshirecountypensionfund.co.uk The website is a reference source; it is updated on a regular basis with information and guidance on LGPS matters. Pensions Administration Strategy Statement The aim of the Pensions Administration Strategy Statement is to ensure that both the administering authority (Shropshire Council) and its employers are fully aware of their responsibilities under the Scheme regulations and to identify acceptable levels of performance. The Administration Strategy Statement can be found at on the Pension Fund website. The Pension Fund website also directs users to relevant information on other websites such as www.lgpsregs.org.uk How to contact Pension Services Write to: Shropshire County Pension Fund, Shirehall, Abbey Foregate, Shrewsbury, SY2 6ND Phone: 01743 252130 E-mail: pensions@shropshire.gov.uk 14