Agenda item

This report outlines the preferred arrangements for contractors participating in the Brent Pension Fund.

John Smith (Pensions Manager, Brent Council) presented a report that outlined the preferred arrangements for contractors participating in the Brent Pension Fund. In providing an overview of the proposal, John Smith explained that outsourced LGPS members had a right to remain within the LGPS scheme and therefore an agreement was required between the Letting Authority and the Contractor regarding factors such as the Contractor contribution rates, bonds and cessation fees. Due to the need to determine the above elements, the conventional approach, which passed investment risk to the Contractor, resulted in high consultation fees, more expensive contracts for the Letting Authority and a slower overall process. Thus, to improve this process, it was proposed to introduce a ‘Pass-Through’ policy which passed significantly less pension risk to the Contractor and reduced the costs of participation. This was largely due to the Contractor’s contribution rate being equal to the Letting Authority’s contribution rate and Contractors not being liable to pay cessation fees, which reduced uncertainty for Contractors seeing as they were not exposed to potential volatile market conditions, which was said should improve the competitiveness of the tendering process for LGPS Letting Authorities.

Furthermore, it was detailed that default Pass-Through would apply to all future arrangements for Contractors with fewer than 15 transferring members. For new Contractors with 15 or more transferring members, the Administering Authority would agree the most suitable arrangement with the Letting Authority. Additionally, it was explained that Pass-Through was being proposed now due to the Department for Education (DfE) recently extending their Academy Guarantee to cover Pass-Through which meant that the Fund could claim expenses back from the DfE if an academy were to cease operating. In finalising, the Board was informed that any early retirement strains and augmentation costs that arose were met by the Contractor via additional lump sum contribution(s), Brent would only ask for a bond or other security if the contract was perceived to be high risk or the letting authority insisted (which meant that a fixed rate would be paid for the majority of small Contractors), and Pass-Through was not suitable for large Contractors (with the Fund retaining the right to opt for a traditional agreement instead of Pass-Through). In outlining that stakeholders were being consulted prior to formal adoption, officers emphasised the benefits of Pass-Through such as more suitable risk sharing, cost savings and lighter administrative processes.

Having thanked John Smith for the introduction, the Chair invited the Board to comment on the proposal, with the consequent discussion summarised below:

•         In response to a question regarding how the Pass-Through policy would be fairly implemented, it was detailed that discretions had been minimised as the policy would apply to specific situations and Contractors. Moreover, the policy meant that Contractors only took on risk that they were in direct control over which benefited Employing Authorities via reduced contracts and Contractors through reduced exposure to risk.

•         The Board was advised that the Letting Authority was whoever let the contract, such as a school, academy or the Council.

•         Regarding built in reviews of the policy to ensure its future appropriateness, it was explained that reviews could be scheduled, although positive feedback concerning Pass-Through had been given from other local authorities who had adopted the policy and therefore it was not anticipated to revert to the conventional approach for small contractors.

The Board welcomed the report and as no further issues were raised it was RESOLVED to:

(1)      Note the proposed Pass-Through approach as the default for admission agreements in line with the principles as specified in the report.

(2)      Note that the Pension Fund Sub-Committee recommended that the proposed Pass-Through approach detailed in section 2.1 of the report is approved by the General Purposes Committee at its next meeting.