Local Government Pension Scheme in England and Wales - Access and Fairness

Background

The LGPS is a good pension scheme which plays an important role in providing security in later life for its members. Members may have good reasons for opting out of the scheme but in general remaining in the scheme is likely to be in their long-term interests. 

Collecting and reporting data on members opting out of the LGPS is not required under current legislation and so is limited. A Local Government Association survey of administering authorities in June 2024 showed opt-out rates ranged from 3% to 40% of members. Further, only 35% of respondents to that survey said that they routinely review the number of members who have opted out of the scheme.

The government proposes to make it mandatory for administering authorities to collect and report data on the rate of members opting out of the scheme. The government wants to understand who is opting out, and why, and proposes the structured collection of demographic and equalities data of those who choose to opt-out. 

The government proposes that the percentage rate of opt-outs will be required to be published in the Annual Report of each administering authority through amending Regulation 57 of the 2013 Regulations.  

The government proposes that the opt-out form that members fill out when they leave should be updated. Additionally, regarding the collection of demographic and equalities data, the government will also create a separate survey on Gov Forms that the employee would be asked to fill in, and when completed, it would automatically return to MHCLG. The Gov Forms platform has been selected as it allows information to be provided to MHCLG directly, anonymously and handled securely, in line with legal requirements on data protection. This information would not be published and would be used in its anonymised state to build an evidence base as to why people choose to opt-out of the scheme. 

At the administering authority level, it is considered necessary for administering authorities to hold this data on the number of opt-outs so they can assess how effective the scheme is as a recruitment and retention tool, and so they can properly assess the fund’s maturity and plan future cashflow. 

Depending on the evidence and trends identified for opt-outs, the government may consider further action. An increase in the numbers of members opting out of the scheme is an issue not just for government or the pension fund, but also for employers, and the solution must be sought together, whether through further changes to regulations, guidance or communications with members.