Consultation response – Changes to Exit Credits

On 30 May 2024 we submitted our views on the consultation in relation to Local Government Pension Scheme (Scotland) on changes exit credits. These are set out below and details of the consultation can be found here.

Importance

We consider the terms on which employers can exit to be an important matter for LGPS funds. They are a key part of each employer’s underlying economic exposure to the pension fund.

The consultation is relevant to all employers, not just those who are able to or who are considering leaving. Remaining employers are affected by the terms of another employer’s exit.  It should not be assumed that remaining employers would want to minimise payments to employers who are leaving. Exit credit payments may well be used towards making a positive contribution towards society and public bodies need to be careful not to benefit at the expense of others.

Consultation

It would appear that LGPS employers who are not scheduled bodies are not consulted on LGPS regulation changes. However, as noted above, all employers are affected by this consultation. Furthermore, employers who are not scheduled bodies are likely to be able to exit and so are more directly affected. With this in mind, we would ask you to consider whether non-scheduled bodies’ views have been taken into account sufficiently.

Timing

The consultation is very short and covers a bank holiday weekend. It’s likely to be too short for employers who might wish to take specialist advice either in principle or relating to their own circumstances. Also, too short for many organisations to fulfil their own governance requirements for responding to consultations and making decisions. With this in mind, we would ask you to consider if the consultation should be extended.

Communication

Other than a SAB meeting minute on the date of the consultation launch there doesn’t seem to be any other communication about this consultation, the reasons for it, the background etc. With this in mind, we would you ask you to consider whether the communication in relation to the consultation was sufficient in order to make the consultation effective.

Content

We would expect to see the following in an effective consultation document: An explanation of what changes are being made and why, including an illustration of

• the potential financial impact on stakeholders
• A tracked changes version of the regulation
• Specific questions to help respondents formulate their response
• Details of the changes that were considered and not made

Policy intention

We are having to second guess the policy intention based on the fact that the changes mirror the LGPS (England & Wales) regulations. In that case the policy intention was broadly to ensure that employers don’t exit the LGPS with more than they have contributed.

This intention is fair and reasonable. However, we have not seen consistent application of the LGPS (E&W) regulations – in a minority of cases we have seen Funds seek to limit exit credit payments for “other reasons” which fall outside of the guiding principle. We consider “other reasons” should be removed or limited to very exceptional circumstances and should not include, for example, market uncertainty.

We are concerned that this new regulation gives funds “carte blanche” to limit exit credit payments. As we have already explained, this is not necessarily creating good and fair outcomes.

Other issues

We are aware that another part of the same regulation is not clear and has been problematic for funds and employers. This is regulation 61(2A) which refers to a 90 day guarantee.  We are surprised that this regulation has not been clarified as part of the same process and we hope that it can otherwise be clarified shortly.

We consider that providing some certainty for period of time is extremely helpful for employers and we hope that this can continue following clarification. However, we would encourage you to think about whether 90 days is long enough for employers to make decisions and take necessary actions.