Academies have been given a guarantee that the government will meet their Local Government Pension Scheme Liabilities (LGPS) if they have to close.
The pledge, which came in a written ministerial statement from Education Secretary Michael Gove over the summer, is designed to ensure their LGPS contributions do not substantially increase after conversion.
In 2012, the Newcastle upon Tyne-based Journal newspaper reported that some schools in Northumberland that wanted to convert to academies had decided not to proceed because they faced higher charges for staff covered by the LGPS which was due to academies’ being seen as higher risk once they left local authority control.
Also in the county, Berwick Academy, an 800-pupil secondary school, incurred additional pension costs of £92,000 a year after converting while Meadowdale Academy faced a £66,000 increase after converting to academy status, as well as being told its pensions bill will go up by five per cent each year, the report said.
In his statement, Mr Gove said: “Too many academies are paying significantly higher LGPS employer contributions than they did as local authority maintained schools. This is having a detrimental impact on academy budgets; reducing the level of funding available for school improvement and in some cases preventing schools from converting to academies.
“LGPS administering authorities have told us that they view academies as higher risk, as they no longer have the financial backing of the local authority. They have asked that we provide a guarantee that the department will meet any pension liabilities should an academy close. We will provide such a guarantee.
“We now expect all administering authorities to review academy risk assessments and to treat academies equitably when setting employer contribution rates.”
A more detailed ministerial statement on the guarantee described the likelihood of an academy closing as “extremely low”. It said that, should an academy close, in the first instance it would be expected to meet pension liabilities from its assets, with any remaining LGPS deficit then funded by the Department for Education. The department added that there was “no planned end date” for the guarantee.
Mr Gove also announced that the Department for Communities and Local Government would launch a consultation on proposals to amend LGPS regulations requiring administering authorities to pool academies should they wish to do so. Pooling would help to create larger populations within pension funds, reducing risk factors such as early retirement.
The team at Nicklin’s can provide expert advice on all aspects of pensions for academy schools, including the financial implications and budgeting for any new contribution rate associated with the LGPS for converting schools. For more information, please contact us.