Pension Fund concerns

No, for once this isn’t about the Teachers’ Pension Fund, partly because there isn’t one: the government pays the difference between receipts paid into the scheme and the pensions payable to pensioners each year. There is an issue about why private schools are in the Scheme, but that may be for another post.

This post is about the report by UHY Hacker Young, the national accountancy group that was released earlier today. According to the authors, the Local Government Pension Scheme fund deficits around the country have increased between 75-100% on average over the last year, following Brexit-related market turbulence. This change affects all academies directly because nearly all non-teaching staff in schools are members of these schemes, unless they have chosen to opt out. As academies publish accounts each year, the scale of their deficit is easy to uncover

I raised concerns about growing deficits among academies in Oxfordshire earlier this year at a meeting of the county council, as they are the body that administers the scheme. Apparently, in 2013 the DfE gave some form of guarantee about under-writing the deficit. However, that seemingly has yet to be challenged, presumably because if an academy changes hands the deficit just passes to the new body running the school. I am not sure what has happened when a school closes completely as happened with at least one UTC in the West Midlands.

Of course, pension deficits are to some extent an a figure on a balance sheet of the type accountancy standards require, but most ordinary mortals pass over very quickly and nod sagely when it is explained to them at the meeting where the annual accounts are presented and discussed. However, with staff costs making up around 75% of the total costs of the average school, according to UHY Hacker Young, something will eventually have to be done to prevent these deficits overwhelming the education budget as a whole, so trustees might want to start asking questions when the accounts are presented to them later this term for sign-off.

As UHY Hacker Young explain:

“Pension deficits fluctuate each year according to market rates and other complex assumptions, however the trend over recent years, even before this latest increase, has been upwards. A deficit means the pension fund does not currently have sufficient assets to pay pensions that will fall due in the future to retired staff, so trustees are rightly questioning how the gap will be funded and where costs can be cut to plug the deficit.”

One option would be for the government to nationalise the fund rather than continue to allow a significant number of different local authority schemes to operate. This would, presumably, reduce the cost of administration, but some well-run schemes might see their returns reduce. However, schools would be secure in knowing that non-teaching staff were now being treated in the same manner as teachers. I assume if this somewhat drastic approach were to be chosen there would have to be a new Scheme, since taking away current assets from the market would be unthinkable.

 

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2 thoughts on “Pension Fund concerns

  1. The guarantee is here: ‘The Department has provided a guarantee for LGPS administering authorities that, where an academy closes, any outstanding LGPS liabilities that arise will not fall
    back on the fund. This is set out in a Parliamentary Minute and Written Ministerial Statement both of which can be found at the following link:
    http://www.education.gov.uk/schools/leadership/typesofschools/academies/la/a00204881/lgps In the first instance we would expect the liabilities to be met from the academy trust’s assets on closure of the academy. Any outstanding deficit that remained would then be met by the Department.’

    https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/248678/131003AcademiesFAQ3.pdf

    I interpret this as to mean that if the closed academy is in a MAT, then the MAT would take on the LGPS liability. But if the academy is standalone, then any liability not met from the academy’s assets would be guaranteed by the Government.

    The link given in the guarantee doesn’t go to the Parliamentary Minute as stated. I found it here:

    https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/281208/LGPS_liabilities_parliamentary_minute_2013_V4.pdf

    Academies that have been closed so far eg Weston Primary Academy, Isle of Wight, were part of a MAT. However, as funding shortfalls begin to bite, we might see MATs going into liquidation. In the past, new sponsors have been found for academies in liquidated MATs, eg Prospects. But new sponsors might not be willing to take over academies in MATs with huge deficits. Such deficits could be written off as part of rebrokerage eg the DfE lent The Thinking Schools Academy Trust £802k (part of overall rebrokerage of £1,052.000) to cover cumulative deficit of The Rochester Academy (now The Victory Academy) when TSAT took over the academy. But only £474 of this has to be repaid. http://www.localschoolsnetwork.org.uk/2016/05/exclusive-0m-to-65m-the-cost-of-academy-transfers

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