Converting to Academy Status
Introduction
Since September 2010, a large number of schools have converted to academy status and many schools continue to do so. The guidance and information available from the Department of Education and Department has changed over this period of time in relation to how they advise that Local Government Pension Funds treat these conversions. The most recent communication received was dated December 2011.
In light of this most recent communication and the current economic climate, Wiltshire Pension Fund has reviewed its approach to academies which is set out below, under the title 'Conversion and Post Conversion'. this position will be reviewed and updated as more guidance is issued.
It is important that any school considering a conversion is aware of the pension implications within the Local Government Pension Scheme (LGPS). we have explained the key points and procedures below.
Pension Position for Support Staff
At the date of conversion, all support staff will continue to be eligible for the LGPS, in the same way as they were immediately before the conversion date. The academy must automatically enter all new support staff that have a contract of three months or more into the scheme.
All members who transfer under TUPE will have continuous pensionable service on the employment(s) that transfer.
Employee contribution bands remain the same across the LGPS, regardless of a change in employer.
In summary, there is no significant change from a member's perspective. Although it is worth noting that the academy will be required to produce an employers discretions policy which may differ from that of the local authority.
Pension Position for the Academy
Prior to conversion
Local Authorities are defined as scheduled bodies in the LGPS, which in brief means they must automatically enter eligible staff into the LGPS and adhere to the LGPS Regulations.
From a LGPS pension perspective, all non-academy schools, for most purposes, come under the umbrella of the relevant local authority. therefore all the assets and pension liabilities for non-academy schools and the local authority are currently combined.
Every three years, Wiltshire Pension Fund (WPF) completes a Fund Valuation which is used to determine the contribution rate for all employers. Non-academy schools employer contribution rates are the same as that of the appropriate local authority.
Both the 2007 and the 2010 Fund Valuation concluded that a pension deficit existed for the two local authorities in the WPF and therefore they both currently have funding levels below 100%. this means that all Wiltshire & Swindon schools (which are not academies) already pay a portion of their current employer contribution rate towards the deficit assessed at the 2010 valuation.
Conversion and Post Conversion
From the date of the conversion, a new academy will be defined as a stand-alone scheduled body in our Pension Fund. WPF's actuary will calculate how many assets the new academy should be credited with by calculating the total value of pension liabilities needed to transfer across and by applying the current funding level of the previous local authority. Based on this information, the actuary will also calculate the initial employer contribution rate that the academy should pay. WPF has decided against applying pooling at this time, as proposed in the joint letter by the Department of Communities and Local Government and the Department of Education. WPF reasons for doing so can be found here.
The initial employer contribution rate could not be significantly different to the current rate that the school is paying, particularly in the current economic climate. It is worth emphasising that the new employer contribution is an initial contribution rate which is subject to change as a result of amendments in the academy's membership profile and the general economic conditions. Contribution rates will be reviewed every three years at the Fund Valuation, the next valuation will take place in 2013.
WPF would normally expect the academy to move to the new employer contribution rate with effect from the date of conversion. If there is a delay in providing or applying the new employer contribution rate, any underpayments or overpayments should be dealt with by adjusting the next payment accordingly.
However, in light of the previously referred letter, which has provided some additional assurance of added security to Pension Funds in relation to any liabilities relating to academies, if the new employer contribution rate is significantly higher than the current rate, WPF will now consider stepped increases to the new employer contribution rates.
Where agreed, this approach will be similar to that used at the 2010 Fund Valuation, where some other educational establishments requested to phase in the increase and the WPF agreed to such requests where there was a favourable assessment of the employers' financial stability. The phasing that WPF will consider will mean that between the date of conversion and April 2014, academies move towards paying at least a third of the increase between the academy's pre-conversion rate and the assessed academy contribution rate.
WPF stress that as each academy will be a stand-alone employer from the date conversions and hence underpaying the full actuarially assessed amount could result in higher employer contribution rates being required in the future and a greater funding deficit.
It should be noted that the funding levels of smaller employers can be more volatile than larger employers. This is because smaller employer's funding levels are more sensitive to the experience of individual members (e.g. an employee retiring early due to ill health), which tend to average out in larger employers which can feed through to changes in the contribution rates.
The WPF uses a rolling 14 year deficit/surplus recover period for academies in order to help assist to stabilise contribution rates. However, the recovery period used is at the discretion of the WPF and may be reduced due to changes in academies funding structures, economic stability, legal framework or general perceived risk of default in contributions to the Fund.
WPF does not require a legal agreement to signed as the pension position of all new academies is stated in statute.
Conversion procedures, timeframes and costs
It is important that our actuary is able to accurately assess the academy's new contribution rate and the amount of assets that the academy will be credited with at the date of conversion. Most of the actuary's calculations will be based on the data of the members transferring, which means it is vital that the data provided is correct and that our records are up to date.
1) Initial spreadsheet submission
The academy, or its payroll provider, needs to complete all fields of the data capture spreadsheet and submit the spreadsheet to andrew.cunningham@wiltshire.gov.uk
Notes:
i) Do not include staff who are not members of the LGPS
ii) Please provide a separate line for each employment
2) Data Cleanse: stage 1
We will compare the details submitted on the data capture spreadsheet with the records on our system and go back to the school if any further information is required. Depending on your or your payroll providers' turn around times, this can take several weeks to complete.
3) Final spreadsheet submission/check
Once any data issues are resolved and we are within a month of the conversion date, we will double check with the school that the list of transferring staff is final and no changes are due before that date. We will also ask the school to confirm that the conversion date has been finalised.
4) Submission of data and receipt of results from the actuary
Our actuary is normally able to provide us with the new contribution rate and asset allocation amount within three weeks of the data being submitted. It is our policy to recharge the actuarial costs incurred for providing this information; this is normally around £3,000.
Other considerations
Accounts
An academy may be required to include details of its pension liabilities as part of their annual accounts. This may be in the format of an FRS17 report, but the academy would need to contact their auditors for further clarification. WPF can commission these reports from the funds actuary and further details of the cost, timescales and terms and conditions are available on application.
Administration arrangements
WPF requires a number of different types of data at various points during the year, which the academy has a responsibility to provide. Examples of this are notifications of new starters, changes of hours, leavers and monthly payments and returns. Please see the Wiltshire Pension Fund Administration Strategy for further details of the expected timescales.
Normally, an employer's payroll provider will provide this service on the employer's behalf. Because of this we strongly recommend that if this is your intention, that you make your payroll provider aware of these responsibilities.
If you are not changing payroll providers the change will not be significant, although, your payroll provider will need to ensure that all data submitted is clearly separated from any other data that is sent to the Pension Fund (e.g. data for non-academy schools). This will ensure that all staff are correctly coded by us.
Questions and queries
If you have any further questions after reading the above, you can contact Andy Cunningham (Employer Relationship Manager) to discuss them.
Telephone number: 01225 713612
Wiltshire Pension Fund, Wiltshire Council - Bythesea Road,Trowbridge, Wiltshire, BA14 8JN.
© 2009 Wiltshire Pension Fund.