By Ela Matters Staff 
Managing pension schemes is an important part of running a business for every employer, particularly for those in the public sector. Understanding the ins and outs of the Local Government Pension Scheme (LGPS) can be crucial, not only for compliance but also for promoting employee satisfaction and retention.
It is a significant benefit that can impact the way your workforce feels about their long-term financial security. These schemes cater to employees in local government and associated sectors, offering substantial benefits in retirement.
How does the LGPS work?
The LGPS includes public sector pension plans designed to provide retirement benefits to employees in local government roles and other related sectors, such as schools and certain non-profit organisations. The scheme is a defined benefit pension, meaning the benefits are based on the employee’s salary and length of service. Each scheme is funded through a combination of contributions from both the employer and the employee.
Employee contributions are typically a fixed percentage of their earnings, with different bands in place depending on their salary level. Employers, on the other hand, also make a regular contribution, typically a higher percentage, which helps to fund the scheme.
The total contributions, along with the investment returns generated by the pension fund, are used to pay out pensions upon retirement. Employers need to regularly review the contribution rates to ensure they remain sufficient to meet future payments.
Employer responsibilities
As an employer, your role in managing the LGPS is not just about contributing financially; you also bear a significant responsibility in ensuring that the scheme is administered effectively. Compliance with the regulatory requirements, as set out by the Pension Regulator, is vital. This includes providing employees with the correct information about their pension rights, ensuring timely and accurate contributions, and keeping up with any legislative changes.
You also need to work closely with pension fund administrators to ensure that both employee and employer contributions are properly calculated, recorded, and paid. Employees have the opportunity to opt into the pension scheme if eligible and they should be aware of how to make any changes to their contributions.
Benefits for employees and employers
For employees, the scheme provides a reliable and secure source of income upon retirement. As a DB scheme, employees can typically expect a predictable pension, based on their final salary or career average salary. Having this in place can lead to increased employee satisfaction.
For employers, the LGPS is a way to attract and retain talent, particularly in competitive job markets. Employees often value pension schemes as part of their overall compensation package. The LGPS may also be a benefit that can also reduce staff turnover, meaning you won’t lose good employees by showing you value their future, and potentially save on recruitment and training costs.
Managing pension liabilities
Employers need to ensure that pension liabilities are properly accounted for in their financial planning. By regularly reviewing actuarial reports, you can assess whether your contribution rates need adjusting to ensure the scheme is adequately funded. Engaging in regular discussions with pension administrators can help you stay informed and make necessary adjustments to keep the fund sustainable.