Academy conversion soured by pension contribution dispute
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The conversion of several schools to academy status in the London Borough of Croydon has resulted in a six-year pension dispute, highlighting the tensions arising from including schools in local government schemes.
Earlier this year, the High Court dismissed an application for amending an appeal brought by multi-academy trust Oasis Community Learning.
Croydon had initiated debt proceedings in 2016 against Oasis in relation to four academies which employ some non-teacher staff that are members of the Local Government Pension Scheme. Oasis did not agree with the deficit reduction contributions it was required to pay and complained to the Pensions Ombudsman that Croydon had “acted unfairly and breached its public law and fiduciary duties” when setting the deficit contribution rates, a complaint TPO did not uphold in May 2021.
The multi-academy trust’s complaint stems partly from the fact that Croydon had, in deciding the contributions, applied a shorter recovery period – 15 years instead of 22 years – than for other employers in the fund, which Croydon based on the fact that there was only a seven-year guarantee for academies from central government. It had also assessed each academy individually on conversion, rather than look at the covenant strength from a whole-employer point of view, but the ombudsman found that Croydon had acted reasonably in setting the individual contribution rates and the 15-year recovery period.
Oasis appealed the determination. However, it later turned out that for two of the academies in question, a different method had been applied when they converted, and Oasis therefore sought to amend its defence. Deputy master Brightwell dismissed the application for amendment, ruling that it does not arise out of the same facts as any of the ongoing claims. Oasis would have to make a fresh claim.
Case shines light on how local authorities assess employer funding
The issue brings to light the lengths to which employers can go if they disagree with the contribution rates set by a local authority fund.
The final judgment, when it is given, could provide helpful guidance about how administering authorities should exercise their public law duties considering their quasi-fiduciary responsibilities to LGPS fund members and, potentially, to participating employers, said Kirsty McLean, a partner of law firm Squire Patton Boggs.
“In my experience, administering authorities are transparent about the basis on which funding is assessed for individual employers,” said McLean, and strive to take a consistent approach across categories of employer, with their policies often publicly available.
The case throws up a wider question about how local authorities use their powers and could have implications in this regard.
“Whilst this case is focussed on the initial funding position attributed to academies, the outcome could eventually have broader implications if the court considers more generally how administering authorities should exercise their funding powers when setting secondary contribution rates for individual employers,” she noted.
For David Davison, a director at consultancy Spence & Partners, the case is symptomatic of the problems with putting education providers in the LGPS.
“They can be relatively high risk from a covenant perspective, which means by having them in the scheme, the LGPS is exposed to a cross-contamination risk where, if they fail without having the full deficit funds available, these liabilities can fall on other employers in the fund,” he argued.
Davison described the seven-year government guarantee’s robustness and enforceability as “questionable”.
If there is a weaker covenant, he said that it was therefore “not unreasonable for the funds to look to use a stronger funding basis for these bodies – say looking to collect deficit contributions over a shorter period of time or using a lower discount rate”.
This results in a contribution rise for those colleges and schools “which is clearly unwelcome for them”, he remarked.
Another problem is that colleges and schools tend to join the LGPS in their respective areas.
“You can have academy trusts with multiple participations across multiple LGPS and all funded on different bases," he noted. “This is ludicrous and unnecessarily complex.”
Davison explained that a mechanism exists via the secretary of state for levelling up, housing and communities to use a ‘Direction to Substitute an LGPS Fund’, but this route has been little pursued or utilised in England and Wales to date. It is becoming more accepted in Scotland, “where there is a clearer process and greater practical experience”, he argued.
It would be more consistent and cost-effective for each academy trust to be in a single LGPS fund, he argued, but admitted that fund may be reluctant in some circumstances given the covenant risk.
For Davison, LGPS funds were never the right home for these staff pensions: “There should have been a parallel scheme to [Teachers’ Pension Scheme] set up which all the academies could have joined, with national pooling and consistent contribution rates, but we’ve ended up with this muddle of multiple academies spread across multiple LGPS, probably none of which really want them in their schemes.”
Oasis Community Learning declined to comment. The London Borough of Croydon did not respond to requests for comment.