To ask the Scottish Executive what measures it will take to safeguard public authority pension funds if an employer cannot provide a guarantor to underwrite their current liability.
Responsibility for the management of the local government pension funds lies with the fund administering authorities, who administer the funds in accordance with the Local Government Pension Scheme (Scotland) Regulations 1998. The Regulations provide that the administering authorities may enter into admission agreements with certain types of body and in certain circumstances.
Essentially, there are three possible scenarios for admission agreements.
Where there is a transfer of undertakings, with the work being outsourced to the private sector, the authority may decide, following a risk assessment by the fund’s actuary, that it is necessary for the contractor to provide a bond or indemnity to protect the fund in the event of the contractor becoming insolvent.
Where an admission agreement is with a Non-Departmental Public Body (NDPB), no risk attaches to the fund itself because, if the body ceases to exist, the pensions liabilities would fall to the successor body. Administering authorities would not normally require a guarantor in the case of an NDPB.
Where a body which is neither a private contractor nor an NDPB applies for admission to a fund, the administering authority may decide to ask the body to provide a guarantor before entering into an admission agreement with it. The fund actuary would then determine an appropriate level of employer contribution. The administering authority may agree to the admission of such a body without a guarantor, but in that situation the actuary it is likely to set an employer contribution rate substantially in excess of that for a body with a guarantor, to reflect the increased risk to the fund. It is a matter for the administering authority, taking into account advice from the fund actuary, to decide whether or not to accept a request for admission where there is no guarantor, or to insist that the body provides a guarantor.