The Local Government Pension Scheme and Auto-enrolment

The new LGPS (Miscellaneous) Regulations 2012 (the "2012 Regulations") provide that, as from 1 October 2012, any new employees taken on by an employer will automatically be enrolled into the LGPS without the need to apply - and if they choose not to be part of the LGPS, such employees will have to opt out.  Note however that employees on a contract of less than three months are not eligible to join the LGPS under the 2012 Regulations.

The Local Government Pensions Committee of the Local Government Association issued a Circular in September 2012 indicating the policy intention that existing employees as at 1 October 2012 who had not joined the LGPS (but were eligible to do so) would not need to be automatically enrolled as of that date.  However, in accordance with the 2012 Regulations, such employees can elect to join the LGPS.

However, there is ongoing dialogue between various bodies and the Department for Communities and Local Government (DCLG) on this issue, and it is anticipated that further guidance from DCLG will be forthcoming.

If existing employees of an employer must be automatically enrolled as from 1 October 2012, that could be a significant issue, particularly if there are large numbers of employees that have not joined the LGPS.

Any employee that was automatically enrolled could, as mentioned, opt-out of the LGPS. But this is a separate issue to workplace pensions auto-enrolment.  All employees (subject to the auto-enrolment eligibility criteria) will need to be automatically enrolled into a qualifying scheme from the employer's staging date.

The auto-enrolment legislation provides that an employee cannot opt-out of a qualifying scheme prior to being automatically enrolled (ie on their staging date, or if postponed, three months later).  Therefore, even if the employee has opted-out of the LGPS prior to the staging date, it is possible that they may have to be automatically enrolled on the staging date and would then have to opt-out again after they have been automatically enrolled.  The DCLG are expected to provide further guidance on this point.

Additionally, employers will have to issue a notice of postponement to workers so that any workers on contracts for less than three months are not automatically enrolled into another scheme (as they would not be entitled to join the LGPS, but would have to be automatically enrolled into some arrangement on their staging date).

If existing employees are not automatically enrolled as a result of the 2012 Regulations, the employer would not have to nominate the LGPS as the workplace pension for those employees.  The employer could nominate another scheme, so long as that was a qualifying scheme under the auto-enrolment legislation.

Accordingly, it would be possible for a company to participate in more than one pension scheme for its employees, and so could have some employees that were members of the LGPS and other employees that were members of another qualifying scheme.

Admission Agreements

Some employers may participate in the LGPS by way of an admission agreement.  Admission agreements may either be open (ie to any new employees) or closed (ie limited to current employees or named employees at the date of the agreement).  All new employees would be automatically enrolled in the LGPS where there is an open admission agreement in place; it may be possible to amend an open agreement to make it a closed admission agreement, or to provide that only new employees that the employer wishes to designate for membership will be eligible for membership.  This would have to be negotiated with the appropriate pension fund, and it is possible that this would involve terminating the current admission agreement and entering into a new agreement.  If this is the case, it is quite possible that the fund would look to charge a termination payment based on the company's share of the deficit in the scheme at that point.

Having a closed agreement would mean that new employees would not automatically be enrolled into the LGPS, but they would need to be automatically enrolled into a qualifying scheme from the employer's staging date.

Alternatively, if the admission agreement allowed for termination, the employer could terminate the agreement; in that case, almost certainly the fund would seek a termination payment.  In addition, employment issues could arise if the company were seen to take away a benefit that employees had enjoyed up to that point.  The contracts of employment would have to be reviewed, as would any commercial agreement between the administering authority and the company, to check for any contractual terms that may potentially be breached by taking such an action.

Other considerations

It is possible for an employer to apply the transitional delay period in relation to existing eligible employees who have not joined the LGPS at the staging date for auto enrolment.  This means that the date the automatic enrolment requirements apply for those employees could be put back to 1 October 2017; however, any employee would have the right to opt in to the LGPS during that period.  This may be useful, as it would mean that an employer would not have to enrol any employee into the LGPS until that later date.  However, the LGPS would need to be named as the relevant qualifying scheme for auto-enrolment, and employees would have to be enrolled into the LGPS at that point.

Additionally, it is acceptable to enrol employees into a scheme or schemes with different contribution rates and benefits for different groups of employees, so long as discrimination law is not breached (for example, employees of a certain length of service, role within the company (ie management or non-management, etc.)), although this could lead to issues of a two-tier workforce.

The interaction between the new Regulations and auto-enrolment is complicated, and subject to further clarification.  Please check back for further developments, or contact Craig Engleman on 01482 337301 / 01904 688509 or email craig.engleman@rollits.com

Posted on: 20/09/2013

This article is for general guidance only. It provides useful information in a concise form. Action should not be taken without obtaining specific legal advice.

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