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Meeting the Auto-enrolement requirements for LGPS
Employers are obliged to automatically enrol all workers who satisfy age and earnings criteria into a suitable workplace pension arrangement. An employer using a defined benefits scheme such as LGPS for automatic enrolment must show that it meets minimum requirements.
We can confirm that the Local Government Pension Scheme (Scotland) continues to meet the minimum requirements in the new CARE scheme though the minimum requirements changed with the ending of contracting-out from April 2016.
LGPS (Scotland) previously satisfied the minimum requirements because it was contracted out of the State Second Pension arrangement. However, this is no longer the case due to the abolition of contracting out from 6 April 2016. After this date we would expect employers to use the 'cost of accruals' test to show that the LGPS meets the minimum requirements for auto-enrolment.
Further details of the cost of accruals test can be found in GAD's briefing note 'Auto-enrolment post April 2016'.
Verification that LGPS (Scotland) passes the cost of accruals test
At the Actuarial Valuation of LGPS (Scotland) as at 31 March 2014 the costs of accrual for each of the schemes was determined as 21.8%1. The cost of accrual is considerably higher than the prescribed percentage (9-11% of earnings) to pass the cost of accruals test. LGPS (Scotland) passes the 'cost of accruals' test and therefore satisfies the minimum requirements for auto-enrolment.
Additional test for career average revalued earnings benefits
There is an additional test placed on career average revalued earnings benefits, such as those offered in the 2015 Scheme, based on the level of revaluation provided. Further details of this test can be found in GAD's briefing note; 'Auto-enrolment post April 2016'. As benefits in service are revalued with reference to CPI increases in line with the rate specified in an HMT Order, the 2015 Scheme, passes this test.
This verifies that the benefits offered by LGPS (Scotland) exceeds the minimum required for auto-enrolment. Employers should keep a copy of the certificate.
Individual funds or employers may have already sought confirmation from their local actuaries, however this certificate covers all employers.
In addition to meeting the minimum requirements, the other criteria for a pension scheme to be used for auto-enrolment are set out in The Pension Regulator's Detailed guidance no. 4 - Pension schemes.
Employers should satisfy themselves that they meet all of these criteria.