Agenda item
Update on Government Guarantee of Academies Pension Liabilities
To note the report and consider the representations from the admitted academies in the LBTH Pension Fund in regard to the original decision to set deficit recovery periods at 14 years;
Minutes:
Prior to the discussion of the report circulated at agenda item 4.2, the Committee was provided with the following formation concerning the New Local Government Pension Scheme (LGPS):
- The new LGPS would be implemented in 2013-14
- Tower Hamlets’ LGPS incorporated 20 admitted bodies and the new scheme would differentially impact each of the admitted organisations. This gave a measure of protection to the scheme.
- The new scheme would save money on the whole, however it also contained a cost management element to ensure scheme costs were capped.
The report was then presented by the Chief Financial Strategy Officer and Actuary, Mr McKay of Hymans Robertson. The Committee was advised:
· That Department of Education guidance at the inception of school academies recommended that these organisations should be treated equitably when setting pensions rates.
· Academy funding was guaranteed by Government for seven years after which deficit liabilities of any failed academy would fall to the relevant pension fund
· At its meeting on 21 February 2013 (minute 4.5 refers) the Pensions Committee considered this matter and agreed 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 local government pension scheme. This decision did not set a precedent.
· In the absence of a robust guarantee from the Government, application of a 20 year deficit recovery period for academies would adversely affect the pension-fund.
· In July 2013 the Secretary of State for Education issued a statement that there was a guarantee in place to safeguard against bankruptcy. However there were a number of caveats on this guarantee.
· Having considered the guarantee proposed by Government, local authorities were not persuaded that the guarantee was solid.
· Following the statement of July 2013, academies have made additional representations to the Secretary of State and a further Government consultation around proposals for a Government set recovery period is anticipated.
The Committee heard that three TH academies have made representations to Pensions Committee requesting a review of the decision of 21 February 2013. In considering this request the Committee noted the following:
- TH Pension Fund also served a number of other admitted bodies; which do not enjoy the deficit guarantee that the academies are seeking.
- The representations made by the academies were general and did not outline specific benefits that would be achieved.
- Academies were able to choose a number of options, concerning deficit recovery. These were:
· Pool academies pensions - there are presently only four academies and in the circumstances the pool was not sufficient.
· Pool with the Council - this presents a possible option. However, its principle contradicts basis on which academies were established (to operate independently of the local authority).
· Pool contribution rate - and track this later.
· Administer academies contributions as independent admitted bodies - it was noted that this option provided a shorter deficit recovery period (14 years) and therefore academies would pay less interest and make recovery sooner.
- If academies wished to operate long recovery periods there would be longer risk exposure.
· Government had put in place an upper limit.
· If some academies moved to the Council’s contribution rate, they would be required to pay more. It appeared that in requesting a review of the deficit recovery period the schools needed to gain a better understanding of its implications on them individually.
- Risk to the Council would increase as more of academies became established and joined the Pension Fund.
- Most other local authorities had offered a 12 year deficit recovery period therefore TH terms were more favourable.
- The Council did not have a legal obligation to accede to the request to change to the deficit recovery period but had discretion to select a recovery period it felt was appropriate.
The Committee considered the oral and written information and highlighted the following issues:
- Referring to the Parliamentary minute provided at appendix 2, Members were not persuaded that the guarantee was as solid as the Government wished local authorities to believe.
- Already some reports of poor Academy performance were becoming publicised.
- Noting the present economic volatilities, the Committee was not assured that the Treasury would rescue all academies from financial distress should they fail.
- Should an academy become insolvent, all liabilities would fall to all of the admitted bodies within the pension-fund.
- Pooling arrangements were a decision for the academies but these would not affect the recovery period.
The Committee then concluded that extending the deficit recovery period would put the Council and other admitted bodies at greater disadvantage. Therefore, based on the matters discussed and the information provided, the Committee came to a view that the deficit recovery period should remain at 14 years.
RESOLVED:
- That the content of the report be noted
- That having considered the representations from the admitted academies in the LBTH Pension Fund, the deficit recovery period remain at 14 years
- That a letter from the Director of Resources be drafted to the academies in LBTH Pension Fund advising them of the Committee's decision and its reasons.
Supporting documents:
- 2. Government Guarantee v1, item 4.2 PDF 113 KB
- 2.a APPENDIX 1 - Representations, item 4.2 PDF 103 KB
- 2.b Appendix 2 - July 2013( Minutes of Ministerial Statement), item 4.2 PDF 281 KB
- 2.c Appendix 3 - Academy Pooling Consultation, item 4.2 PDF 92 KB