LGPS temporarily halts pension transfers
0The Local Government Pension Scheme (LGPS) has temporarily halted transfers into private schemes due to a proposed reduction in the discount rate employed by public sector schemes.
A decline in the discount rate will lead to an increase in the present value of pension assets, and thus in the transfer values of those seeking to move their pension pots out of the LGPS.
The LGPS is fully funded, and consequently allows its members to transfer their money out.
This is unusual for public sector defined benefit schemes.
Speaking to Room 151, Barry McKay associate actuary at Barnett Waddingham LLP said the halt was reasonable.
“The Treasury has made a change which will have to be applied from one fund to another. These things always take a bit of time.”
The Office for Budget Responsibility has revised down its long-term forecasts for the UK and as a result the Treasury is proposing to reduce the discount rate to the Consumer Price Index plus 2.4% from plus 2.8%.
The intention to change the rate was announced in the Budget in October.
Because the LGPS is fully funded it does not, unlike other public sector pension schemes, use this Treasury discount rate to evaluate future contributions to the scheme and value pension assets.
Unfunded schemes do, and will therefore see a need for contributions to be increased.
The discount rate is determined by an estimate of the future growth in the economy, as the costs of the unfunded public sector schemes are largely met by present and future taxpayer contributions, and the schemes are thus dependent on the size of the economy for their viability.
McKay told Room 151 that the revision may however have an indirect effect on the LGPS.
“When a fund comes to look at how its own UK assets are likely to perform, they will have one eye on the Treasury.”
LGPS funds may therefore be encouraged to have a hard look at the discount rates that they employ and possibly revise them downwards in so far as they are invested in the UK.
