Agenda item

This report presents proposed revisions to the Admissions Policy, Academies Policy and the Funding Strategy Statement as marked up on the appendices to this report.

When considering the proposed revisions the Committee needs to be aware of the two substantial changes to the Fund’s approach, these being:

1.     To make passthrough the default option when admitting a new contractor to the Fund detailed in sections 3.6 to 3.8.

2.     To allow passthrough to any contracts let by academies which satisfy certain conditions as detailed in sections 3.9 and 3.10.

The Acting Head of Pensions and Treasury introduced the item and explained that it was important for the Fund to have an admissions policy to mitigate any risk that new employers may bring to the Fund. The admission policy was drawn up in December 2021 and officers had proposed two main changes to the policy as they believed that it was better to have a passthrough arrangement with employers that were contracted by the Council.

The Acting Head of Pensions and Treasury informed the Committee that the policy that had been previously adopted saw employers contributions assessed as if they were a standalone employer. This was problematic as when the Council would tender for contracts, the employer would not know the pension costs they would have to pay.

The Acting Head of Pensions and Treasury stated that as the Fund was generally made up of small employers their covenants would be quite weak, so the Fund would usually require new employers to put bonds in place to protect the other employers within the Fund. The Acting Head of Pensions and Treasury stated that this would be quite difficult for small employers to do as it would be quite expensive, this would also require a lot of work for the Fund as legal agreements would need to be arranged.

The Acting Head of Pensions and Treasury explained that under a passthrough arrangement the risk would stay with the Council and not the Fund, and when a contract ended rather than a cessation value being calculated, the assets and liabilities would transfer back to the Council’s notional pot in the Fund. There was no cessation amount due to or from the employer.  which would enable the Council to award contracts a lot easier.

In response to questions from members officers informed the Committee that:

• Academies were judged on an individual basis, so the risk was not with the Council. The contracts let out by the Council were with small employers, so the risk to the Fund was small.
• The Fund was protecting itself by allowing the Council to take on some of the risk.
• The employer would pay the same contribution rate as the Council, so they would be effectively paying the future service rate and a portion of the past service rate.
• If the employer was analysed on their own, then their covenants would be weaker and would join the Fund on a fully funded basis which would mean that they would not be paying any past service deficit rate.
• The Council could agree for an employer to pay a fixed rate, but the Council would have to make up the difference.
• Passthrough was a way of sharing the risk for the pension’s allocation. The contractor could price in the pensions risk into their fee which would cause the contracts to become more expensive.
• If a contractor was not going through the passthrough arrangement, then officers would insist that a bond was put in place which would be expensive for the employer.
• Most Councils had adopted the passthrough arrangement.
• If the Council were not prepared to take on the risks which came with the passthrough agreement, then officers would then insist that the admission agreement had a bond put in place.
• Croydon Equipment Services (CES) was currently under the Council’s umbrella however they would soon be set up as a company in their own right under the passthrough agreement.
• If CES were to be assessed as an individual employer their liability would be £3 million.
• CES had 80-90 fund members, but most companies had around 4/5 fund members.
• Through passthrough the Fund was getting the covenant of the Council which was extremely strong.
• Passthrough was a good tool as there weren’t many large employers so there was a minimal risk to the fund.
• The Council accounted for around 80% of the fund, 5% of the fund was made up by Croydon College and the vast majority of the others were academies and they were covered by the Department of Education guarantee.
• Large employers included Croydon college and academies. The failure of smaller companies would not be much risk to the fund and the liability would fall on the Council.
• Passthrough was the safest route for the Fund and the Croydon council taxpayer could benefit from the policy as they could be avoiding an additional cost being priced into a contract with an employer due to the uncertainty around pension costs.
• The policy would not go to another committee as it fell under procurement and the pension arrangements were priced within a contract. The Council did not have to agree passthrough, and if the Council insisted that a contract went through an alternate route then the Fund would then have to agree a bond with the contractor which would then cause the contractor to price their work differently.

The Acting Head of Pensions and Treasury stated that Officers were recommending that the passthrough arrangement would apply to admission bodies where contracts had been let by academies as the Department for Education had now extended their guarantee to cover these as long as the letting conditions they stipulate had been met.

Resolved:</AI3>

1.1   To agree the revisions to the Admissions Policy, Academies Policy and the Funding Strategy Statement attached as appendices A, B and C.