The Government has announced that a “major reform of post-16 education and training institutions is now necessary” and that we need to move towards fewer but larger providers and that it would be facilitating a programme of area-based reviews of 16+ provision in every area.

These reviews may either be proactively initiated by a group of institutions in a local area, or by Government. It has subsequently issued Guidance on this to support the reviews.

Timescales

All area reviews are to be completed by March 2017.

Some colleges are ahead of the game and are carrying out reviews in relation to potential mergers/ collaborations before they are forced to do so.

Options available to colleges

There are various options which are available to colleges in relation to college mergers and each of these structures will have different pensions implications. In their simplest form, the main structures are:

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Pensions issues on college mergers

There are various options which are available to colleges in relation to college mergers and each of the structures will have different pension implications as most colleges participate in the LGPS and TPS. 

LGPS

In relation to the LGPS, care needs to be taken when structuring a merger to avoid a regulation 64 “exit debt” being crystallised under the LGPS Regulations 2013 when the employees TUPE across into College B or the New College. Exit debts ordinarily mean an immediate payment by the ceasing employer into the Fund of all of the deficit valued on the least risk, buy out basis. Such exit debts can be millions of pounds, depending on the size of the exiting employer.

The issue is even more complicated if college A and B participate in different LGPS Funds.

There are ways in dealing with LGPS deficits on college mergers and advice should be taken where required, to avoid inadvertent crystallisation of an exit payment.

We recommend that pensions’ law considerations are considered at an early stage in the due diligence review process.