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rebrokered academies and Local Government Pension Scheme liabilities

1 November 2018

We have recently seen a new direction from the Department of Education with respect to the treatment of Local Government Pension Scheme (LGPS) liabilities for academies on rebrokered projects. There have been a number of high profile news stories in the press of late with respect to multi academy trusts having failed and the DfE stepping in and rebrokering the outgoing trust’s academies to new sponsors.

The mechanics of transferring an academy from an outgoing trust to a new sponsor will of course involve a transfer of academy staff by way of TUPE and the entering into of legal documents to transfer both the land and of course the business and assets of the academy itself. The transfer of the academy is ordinarily dealt with by way of a transfer agreement entered into by the outgoing trust and the new academy trust sponsor. This is a commercial agreement that is directly negotiated between the parties and the Department would not usually be involved in such negotiations, that was always the case until their recent stance on pension liabilities.

In the past, the usual expectation on any rebrokered transfer was that an acquiring trust would solely assume responsibility, and all associated liabilities for those academy employees that would be transferring to it by way of TUPE, this would of course include any LGPS pension deficit associated with such transferring employees. 

The latest position is on any rebrokered projects, the Department now require additional clauses in the transfer agreement which means that any acquiring trust will assume responsibility for not only the transferring staff, but also any former employees of the outgoing trust relating to that academy. The effect of these amendments extends the liability of the incoming sponsor under the LGPS in relation to the academy, as it essentially requires the sponsor to take on liability in respect of individuals they do not employ. Such liability would, in the normal course of events, remain with the outgoing trust. 

With the Department's latest approach in mind it is worth any acquiring sponsor taking note that the additional liability could impact on the current employer contributions of the incoming trust to the LGPS and/or increase employer contributions that are set following future actuarial valuations of the Fund. The LGPS liabilities of the current and former employees of the academy are already being funded for in the employer contribution rate that the academy will be paying to the LGPS. However, if that rate is insufficient to meet the cost of the additional liabilities, the acquiring sponsor will be responsible for making good any deficit.

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