Agenda item
Recovery of Pension Fund Deficit Contribution - Academy Conversion
To agree a deficit recovery period for active transferring members.
Minutes:
Jill Bell, Head of Legal Services - Environment presented the report advising the Committee that two maintained community schools which have received an Academy order have applied to join the Council’s Local Government Pension Scheme (LGPS). Members were advised that, because academies were scheduled bodies, admission to the pension scheme for non-teaching staff was mandatory; however the Council could exercise discretion on the length of recovery deficit to period it wished to set and whether to allow pooled arrangements.
It was noted that the Old Ford and Culloden Primary schools would convert from maintained community schools to a Multi-Academy Trust. Members were asked to note the actuarial assessment and actuary’s recommendations contained in the appendices to the report and were advised that a representation had been submitted by each of the schools; these were circulated as a supplementary agenda.
Mr Barry McKay, actuary on behalf of Hymans Robertson addressed the Committee. He spoke on issues discussed in the appendices to the report and responded to the issues raised in the schools’ representations.
He advised the Committee that in November 2011, two other schools had converted to academies at which time the Committee had agreed a 14 year deficit recovery period. This period was chosen as a compromise between the 20 year deficit recovery period normally applied to councils and the seven-year Government backing given for school academies.
Noting the projected future working lifetime of these new organisations he advised that it was appropriate to look at the age profile of academy non-teaching staff noting that, by design, academies will have more independence from the local authority and are therefore deemed more risky. In view of these factors it would be more prudent to recoup the debt more quickly. Mr Finch, (Interim S151 Officer and Service Head Financial Services, Risk and Accountability) also noted that Government guidance on this matter, whilst suggesting support, did not guarantee liabilities. Since, academies were independent schools, the local authority would no longer be in a position to guarantee liabilities. The normal twenty-year recovery period enjoyed by the authority was a concession by the actuary based on the authority’s tax raising powers.
In regard to risk. Cllr Golds argued that having created academy schools the Government would inevitably ensure that they were guaranteed. Ms Bell advised that, as trustee, the Pension Committee was charged to consider the interests of the pension fund members noting that admission of this new body would have an impact on the pension fund. She advised that academies could furthermore stipulate their own pay policies which would bring risk to the fund should an academy become insolvent. Additionally the Secretary of State had had opportunity to give a guarantee but had not done so. Mr Mckay advised that non-teaching staff were exposed other risks noting that if an academy should become insolvent these staff would not automatically be employed by a successor body and so exposure to risk was greater. Cllr Golds maintained that the Government would inevitably guarantee education and, since academies are also funded by the Government, the collapse of academies would also render state schools open to collapse. Cllr Francis argued that it was necessary to guard against pressures on the pension fund as, while he did not anticipate academies to become bankrupt, it could occur that pensions commitments in succeeding independent schools regimes would not be honoured.
Mr McKay advised that the Committee could opt to set a different recovery period which could be reviewed every three years. He noted that the Council’s deficit was spread over 20 years to make the contribution rates affordable and recommended the Committee did not start with the worst-case scenario but that the deficit recovery period be reviewed subsequently.
In response to Members’ questions, the Committee was advised that:
· the deficit recovery had no bearing on employee contributions
· the two schools which had previously converted to academies had not questioned the arrangement or challenged the period. However one academy had raised the matter of the rates set with the Secretary of State
· free schools were not scheduled bodies and therefore the local authority could operate closed arrangements for their admission into its pension scheme. Free schools would be able to apply to be admitted into the fund if they wished but would not be obliged to so. However, since academies were scheduled bodies, they were entitled to be admitted into the pension fund
· the application related to non-teaching staff only
· it was noted that if the calculation were to have been made in January 2013 the rates would be higher than those were the result of the calculation made two years ago
· the calculation comprised two elements; the first was a standard rate of 20% and the remainder (which in this case comprised 12% of the final value) was dependent on the recovery period set. Hence, even if a longer deficit recovery period had been set, it could not have been expected that the contribution rate derived would be significantly lower
After these discussions, Members considered the proposal that the recovery period be set at 14 years and agreed that this period was approprieate.
RESOLVED
1. That a deficit recovery period of 14 years for the amount of deficit attributable to active transferring members and that attributable to deferred pensioner members of the LBTH Local Government Pension Scheme for Old Ford primary school and Culloden primary school on the creation of the Multi-Academy Trust be approved
Supporting documents:
- 4.5 Academy Conversion 21-02-13 OF&CSchools FinalV4, item 4.5 PDF 118 KB
- 4.5a APP 1 130205 Funding approach for Academies, item 4.5 PDF 2 MB
- 4.5b APP2 Academies Covering Report Old Ford - Colluden Schools Trust, item 4.5 PDF 763 KB
- 4.5c APP 3 130125 Schedule of Results, item 4.5 PDF 840 KB
- 4.5 supp (a) CPS - LGPS pension letter (3), item 4.5 PDF 171 KB
- 4.5 supp (b) OFPS LGPS pension letter (3), item 4.5 PDF 209 KB