Clerk's Pension

Question

Our clerk informs us that we are required by legislation to enroll them in the Local Government Pension Scheme. The problem is that we are a small council with a precept of around £5,000 and the LGPS is costing an eye-watering 23% of the clerks salary.

In addition the clerk is considered an "entitled worker" under the new workplace pension legislation as they earn less than £5,824. This means that under the scheme their employer (Parish Council) is not obliged to contribute.

So are we obliged to adopt the LGPS?

What pensions do other small councils pay their clerks?

Answer 1

You do not have to enrol your clerk under the LGPS but unless they are above retirement age, they need to be enrolled with an acceptable scheme.  Every workplace has a date by which all eligible staff have to be enrolled and this is called 'auto-enrollment'.  Staff then can decide to opt out at a later date.  So you have a choice of schemes but not a choice on whether you enrol them.

Comments

The staging dates for auto enrolment vary, but the final date for an existing employer is 1 April 2017. There are penalties for not complying.
If the clerk wants to be enrolled you have to provide that option.
However, if the clerk is already in the LGPS that should count for enrolment afaics.
Take care that there are no penalties for cancelling the LGPS. They can be very large.
I would think it would be very difficult to ask your clerk to change to the new style pensions. It would cost you a lot to buy them out, I would have thought.

PS we pay 7% employer contributions and the employee choose the amount they want to put in (see government minimums)

Answer 2

There is legislation in place that entitles a clerk to join the LGPS, however the full council must pass a resolution to confirm their agreement at a full council meeting as councils are designating bodies.  The national contracts which have been agreed by two sets of solicitors representing both councils and clerks specify the LGPS scheme, whilst the good employment guide also states the LGPS is the preference scheme for clerks of both parishes and towns.

Yes you could technically pass resolution of a different pension scheme, by resolving at a council  meeting to join another lower paid scheme but whilst you may be complying with an obligation to provide a pension ,you may not be complying to equality and discrimination employment laws. A big problem if the clerk is unhappy about this.   A Court case could cost the council in excess of the clerks salary.  The hmrc website for small employers also states it is illegal to dissuade someone to give up their pension rights so I would tread carefully as it would be important that the clerk was happy with any arrangement.

A Council must precept all statutory employment costs in its annual budget and must ask for as much as meets its needs.  If you consider that your district council and all its employees including £100,000 Directors  automatically get enrolled on the LGPS then really her request is within reason, especially as some District Councillors also claim the LGPS.

Comments

Thanks for your answer. As you are citing legislation, could you provide a specific reference please?

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The National Assoc Of Local Council Solicitor informed us the clerks eligibility to join the LGPS dates back to 1993 act of parliament.  However in the past pensions were not obligatory as small councils typically had less than 5 employees.  A good compromise may be increasing paid hours providing a direct benefit to the community and see if the clerk in question would consider the LGPs 50/50 scheme.
This puts her in the LGPs, but only half the hours are pensionable.  The clerk concerned would need to fill out a LGPS form confirming she had not been falsed to give up 50% of her pension rights. This also allows your council a period of time to precept for full membership.  This would also help the council to budget more realistically for a point of time when the clerk will need to be replaced and would ensure that the council meets the part time workers regulations. Hope this advice is helpful.

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Thanks. Eligibility is not the same as entitlement. Does the legislation create the possibility that a clerk could be enrolled in LGPS, or does it say that a clerk has a right to insist on being enrolled in LGPS? It sounds like the former. I'd agree that councils should make sound pension arrangements for employees, but I'm not sure that employees have a right to insist on any particular scheme or even type of scheme. Isn't a council entitled to judge what is the best balance between the interests of clerk and citizens?

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Just a follow up - I note that the 2016 version of the NALC Good Employment Guide says employees should be "...enrolled automatically into a ‘qualifying’ pension scheme, subject to eligibility criteria...". The LGPS in not mentioned at all (except in the index?).
The tail risks of having staff in the LGPS can be considerable. For example, if an employee takes early retirement, then their pension may not be fully funded. The council will be presented with a large bill to pay for the underfunding, which could be considerable - £20,000 to £60,000 are figures I have seen banded about. Something to add to the councils risk assessment perhaps?

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I'm glad you raised that. My experience is of the North Yorkshire local government fund, where we had to continue making payments even after we had nobody who was a current member of the scheme. We eventually escaped, but it was certainly a matter of concern. We have changed to providing a generous money purchase scheme, which avoids any residual liability. It is hard to know how it will work out for the clerk, but we believe that by providing generous contributions the result is as likely to be good as any other route. The clerk is also free to set their own level of contribution without affecting the council's payment.

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Interesting that you were able to pay over time, rather than as a lump sum, but each LGPS is peculiar to its own county scheme, as you know. We did receive advice from an IFA, who strongly recommended the money purchase schemes (NEST or similar). Unfortunately, these NEST type schemes are unlikely to be as generous as the LGPS when it finally comes to retirement, and is dependent on the funds value at the time rather than any formulae.
Some calculations that I made certainly show there is a considerable difference in any future value of a pension that can be drawn.
I think one thing should be made very clear to anyone looking into a LGPS, is that the employees benefits are guaranteed, but the costs and risks fall squarely on the tax payer, via the precept. It is not backed by Government, as the name might imply.

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It wasn't exactly the same situation as yours. There was no immediate requirement for a payment by the pension fund, as no previous clerk had actually retired. What astonished us was that we had to go on making monthly payments when we had no clerk. While I'd accept that on some calculations defined benefits will be better, I'm not sure that is always the case. Especially in a situation where the contributions are not devoted to purchasing benefits for the individual, but include an element of making up an accumulated deficit. Certainly, we were scared off by the extreme uncertainty of the employer liabilities. There's also a question about whether the benefits will be so good for someone who does not remain in the scheme until retirement. Where the individual is young and quite likely to continue with a career in different posts and perhaps even in different sectors, money purchase can at least provide a portable ongoing pension fund with some certainty. We also arranged that the individual should be able to choose their own investments, although that is now complicated by automatic enrolment.

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Fascinating. Understanding pensions should be easy, but the myriad choices that must be made for each individual, not to mention trying to plan for something you hope will payout in 30+ years time can be a nightmare for anyone. I think your council is extremely lucky to have someone who understands this stuff.

You are right about the deficit reduction, in our case it's an additional 3% on top of the funding requirement of 18%. This is eye wateringly expensive for a small Council, especially when the future liabilities are taken into account. (It is very illuminating to see the deficit reduction contribution for a district council - never mind a parish council)!

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Well, I wouldn't wish to claim to be an expert! If it's any comfort, some people think that pension funds similar to LGPS are being valued wrongly and do not really need additional funding: http://citywire.co.uk/money/pension-deficits-have-bean-counters-got-the-sums-wrong/a1040278

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A very interesting article and I have read of similar arguments being made. Some of the comments after the article were of interest too.
As a bye the bye, at a recent ALC training session, is was said that a lot of employers were paying the minimum required into the new NEST type funds, (which from 2019 is 8%, with employer paying a min of 3%). Not a great deal IMHO.

Incidentally - this website is a great resource - I appreciate your hard work in creating and maintaining it.

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Thanks, glad you find the site helpful!

Answer 3

Our council chose to join the County Council pension scheme but it is expensive and also our precept is much higher than yours. Some of the lower pensions will not attract the calibre of the clerk you may wish to have work for you. My advice is put yourself in the clerks shoes - they have their own personal future to think about ie preparing for their own retirement. Get several options and then talk it over as a council, include the clerk to get their view as well during the discussion - even if they at not present for the vote.  Our county council gave us solid advice.

Answer 4

There is no legal requirement to enrol the Clerk in the LGPS - so you should challenge your Clerk to provide evidence of her assertion.   This raises questions about her honesty or competence, and your Cllrs should challenge her,  or at least who advised her. The LGPS is a good scheme, operating on Career average related earnings  (CARE) not actually final salary.  Employer/Employee contributions to it are usually higher for Town/Parish Councils than for Principal Authority employees.

Comments

I agree with Graham, Councillors are elected to represent the Parishioners interests and the LGPS can represent a blank cheque
If you don’t believe me open this link  https://www.theforestreview.co.uk/article.cfm?id=1145&headline=Sick%20leave%20costs%20doubled%20town%E2%80%99s%20staff%20costs&sectionIs=news&searchyear=2011