The Scheme Advisory Board (SAB) for the Local Government Pension Scheme (LGPS) has recommended that the Government change the law to prevent LGPS employers from offering an incentive for eligible staff to join a scheme other than the LGPS.  

The SAB believes that a ban is appropriate because it considers that there are no good policy reasons why an employer should encourage eligible staff to leave the LGPS and join another scheme.

Currently, there is nothing to prevent an employer from offering a different scheme or offering an incentive to leave the LGPS, so long as an auto-enrolment compliant scheme is available.

Some people take the view that alternative schemes are likely to offer less generous benefits and when many employees are not saving enough for their retirement, allowing employers to encourage employees to leave the LGPS is wrong. 

There are good reasons why an alternative scheme is appropriate. For some employers, continued participation in the LGPS restricts the amount of pay and other benefits they can offer, which can lead to problems with recruiting and retaining staff. For others, exiting the LGPS may be to manage potential existential risks to the organisation not foreseen at the time they started to participate in the LGPS, often many years before. For those employers who already offer another scheme, there may also be questions of fairness and ensuring that all staff receive the same offer.

The combination of potential exit payments and restrictions on employers' ability to amend employees' terms means that there are already significant barriers to making changes. We question whether a ban on offering incentives to opt out of the LGPS strikes an appropriate balance between allowing employers to manage their organisation appropriately and protecting employees by ensuring higher income in retirement. A ban could also result in unintended consequences, with employers who are determined to leave the LGPS unable to offer any compensation to employees, leaving them worse off than they would otherwise have been.

For advice on participation in or exiting the LGPS, contact Doug Mullen or Lauren Broderick.