COVID-19 FAQs for LGPS administrators
What activities should administering authorities and employers focus on?
TPR's coronavirus (COVID-19) guidance
recommends that trustees, employers and advisers focus their activities on the key risks to pension savers. For the LGPS, we recommend that administering authorities prioritise:
- paying existing pensioners
- processing new pensions benefit cases
- dealing with bereavement cases
Other areas that should continue to receive attention are ensuring receipt of employee contributions and the provision of member information to reduce the risk of scams and support effective decision making. TPR recognises that during this time some administrative breaches of the law may occur and therefore will maintain a proportionate and fair approach to any action they may take.
Should an administering authority allow electronic signatures and documents?
Can employers delay or pause paying employee contributions?
No, regulations confirm that employee contributions must be submitted to the administering authority in line with the timescales in the Pensions Act 1995. That is, by either the 22nd (where they are paid electronically) or the 19th of the month following the last day of the month in which the contributions are deducted. If an employer fails to submit employee contributions on time, paragraph 148 of TPR Code 14
states that where ‘the scheme manager has reasonable cause to believe that the failure is likely to be of material significance to the regulator in the exercise of any of its functions, they must give notice of the failure to the regulator and the member within a reasonable period after the end of the prescribed period’.
Can an administering authority delay receipt of the valuation rates and adjustment certificate beyond 31 March 2020?
Regulations state that the rates and adjustments certificates must be obtained before the first anniversary of the valuation date unless the Secretary of State agrees to a later date.
Can administering authorities allow employer contribution ‘holidays’?
Our view, subject to MHCLG legal advice, is that regulations confirm that an administering authority may determine the intervals for employer contribution payments, as they consider appropriate. There must be at least one payment per year but whatever intervals are set, the total contributions due for the year, as set out in the rates and adjustments certificate, must be received by year end and each payment must equal the appropriate proportion of the total contributions due for the year.
If, as a last resort, administering authorities consider deferring the commencement of payments to later in the year it is imperative they consider the risks to the fund. These include but are not limited to the risk of the employer not being able to meet the full amount by year end and the risk to the fund’s cash flow requirements. Although not directly applicable to the LGPS, administering authorities should be mindful of guidance issued by TPR
on this matter.
What happens if employer contributions are received late?
If an employer fails to pay contributions on time, regulations confirm that the administering authority may levy interest of base rate plus one percent from the due date to the payment date daily with three monthly rests. Paragraph 147 of TPR Code 14
also requires that where the ‘scheme manager has reasonable cause to believe that the failure is likely to be of material significance to the regulator in the exercise of any of its functions, the scheme manager must give a written report of the matter to the regulator as soon as reasonably practicable’.
If an employer is in severe financial difficulty, can an administering authority force them out of the scheme to avoid further build-up of liability?
No, regulations confirm that the only circumstances in which an employer ceases membership is if there are no active members (an exiting employer) or if the administering authority considers it likely that they will become an exiting employer.
Can administering authorities use the ‘deferred employer’ route or other flexibilities to better manage employers who exit the scheme?
The deferred employer route is not currently available in the LGPS. However MHCLG are considering the possibility of bringing forward these and other proposals for flexibility on exit payments included in the May 2019 consultation
Current regulations provide that an administering authority may recover an exit payment over such period of time they consider reasonable but can only suspend the employer’s liability to pay an exit payment where there is an expectation that the employer is likely to have one or more active members contributing to the fund within the period specified in the suspension notice. Any suspension can only be for a maximum of three years and the employer must continue to pay contributions as reasonably required by the authority during that time.
Can an employer defer payment of strain costs?
Regulations confirm that this is an administering authority discretion which may be limited by the Funding Strategy Statement (FSS). For example, an FSS may state that strain costs must be paid immediately except in exceptional circumstances and only for ill health cases. Administering authorities may wish to review their FSS to provide more flexibility for employers during this crisis.
A member is on emergency volunteering leave, on what pay are employer and employee pension contributions determined?
Employer pension contributions will be based on assumed pensionable pay (APP). Employee pension contributions will be based on the amount of the employee’s actual pay during emergency volunteering leave (EVL)
. All scheme discretions (administering authority and employing authority) should operate in the same way as if the member were receiving normal pay.
An active member is seconded as part of the emergency staffing; how does this affect their pension benefits?
If any LGPS members are seconded on emergency staffing
to the NHS, their pension benefits continue on the same basis as before the secondment.
A deferred or pensioner member is part of the emergency staffing; how does this affect their pension benefits?
Deferred and pensioner LGPS members who return to work in local government or are offered contracts of employment with the NHS (as part of emergency staffing
) will have access to pension provision in the appropriate pension scheme. If they are issued with an NHS voluntary agreement it does not constitute an employment contract and therefore, they will not have access to the NHS pension scheme. Please also see answers to the question covering abatement of pension.
Should an administering authority abate a member’s pension if they return to work?
Although the Government suspension of abatement in the NHS pension scheme did not extend to re-employed members of the LGPS. The Government’s policy is that key workers should not be financially penalised for helping tackle coronavirus (COVID-19). On 19 March the England & Wales Scheme Advisory Board (SAB) sent a letter
to the chairs of pension committees to that effect. Administering authorities should adjust and publish their revised abatement policies as a matter of urgency.
Is furlough pay pensionable?
Yes, furlough pay is pensionable pay under the regulations. Employee and employer contributions should be deducted based on the actual pay the furloughed employee receives. Assumed Pensionable Pay does not apply.
Can employers reclaim pension contributions from furlough pay?
Employers can only claim pension contributions for furloughed employees up to the minimum required for automatic enrolment, that is 3% of income above the lower limit of qualifying earnings (which is £512 per month until 5th April and will be £520 per month from 6th April 2020 onwards).
How will furlough pay affect pension build up?
Members will continue to build up CARE pension based on the actual pay they receive. If the furlough pay is less than their normal pay (because the employer chooses not to top up pay to 100%), the pension they build up will also be less. They can choose to buy additional ‘extra’ pension to make up for the pension lost during this period. The employer is not obliged to split the cost with the member but can choose to.
Final salary benefits are usually calculated using the pensionable pay earned in the year before leaving the scheme; however, one of the two previous years' pay is used, if higher. This should prevent final salary benefits from being detrimentally affected if the member’s pay is reduced due to being on furlough.
In our view, if a member’s contract of employment is changed when they are furloughed, they will not have the option to have their final pay calculated as the average of any three consecutive years' pay in the last 13 years.
How will being on furlough leave affect a member’s death in service benefits?
Assumed pensionable pay (APP) is used in the calculation of the death grant and any survivor benefits if a member dies in service. APP is usually calculated using the average pensionable pay the member receives in the three months before the pay period in which they die.
If a member receiving reduced furlough pay dies in service, employers should make use of the provision in the regulations that allows them to substitute a higher pay figure to reflect the pensionable pay the member would normally have received.
When determining the employee contribution rate on 1 April 2020, should furlough pay be used?
Yes, if furlough pay forms all or part of a member’s pensionable pay it should be used to determine the employee contribution rate on 1 April 2020.
Regulations provide that where there is change to employment, or a material change, during the year, the employer can make a further determination and reallocate a member to a different band - if they do this, they must notify the member. This is a discretion under the regulations - for more information see the LGA guide on discretionary policies
What information is available for members who are concerned about their financial situation due to COVID-19?
Administering authorities should encourage members to look at the member FAQs
. This includes questions about reducing/ceasing contributions, pension scams and other guidance on how to deal with the financial effects they may be suffering.
Can LGPS authorities suspend the payment of CETVs?
On 27 March 2020, TPR published COVID-19 DB scheme funding and investment guidance for trustees
which includes a reference to suspending CETV payments for up to three months where trustees feel it is in the best interests of scheme members. Although this guidance does not directly apply to the LGPS, administering authorities may wish to use it when deciding whether to suspend the payment of CETVs in the coming months. Government is considering if similar guidance should also be issued for public service pension schemes, if so, it will be referenced here as soon as it is available.