Watford Community Housing
P. 1

 Watford Community Housing eliminates its LGPS cessation debt risk with
First Actuarial’s help
                      Key outcomes
First Actuarial finds an innovative way to eliminate the cessation debt risk entirely
Freed up from the risk of
debt, WCH can focus its funding on social housing
A great people outcome – Keeping the LGPS open for current members
The risk of a significant cessation debt hung over Watford Community Housing (WCH) as the number of its employees participating in the Local Government Pension Scheme (LGPS) diminished. WCH asked First Actuarial to find an approach to mitigate this risk.
A number of years ago, Watford Borough Council transferred its social housing stock to WCH. “The process gave us LGPS pension obligations for the 80 Council staff who moved across,” says Paul Richmond, Group Director of Finance and Resources at Watford Community Housing. “But within a few years, we had fewer than five active LGPS members left.”
The Imminent risk of c.£3 million challenge cessation debt
Case Study
    This decrease in membership presented WCH with a significant risk. Were the organisation’s LGPS membership to reduce to zero, then a significant one-off payment, a cessation debt, would be triggered.
“We were facing a bill of around £3 million,” says Paul, “which would have diverted much- needed funds from our core mission to build and maintain homes in the community, and it could have happened at any moment.”
WCH had more than enough money in the Scheme to cover the expected pension benefits on an ongoing valuation basis (approximately £2 million) but due to LGPS cessation regulations, a cessation debt payment estimated at £3 million loomed. Understandably, WCH’s Board wished to reduce this exposure.
  The Transferring LGPS surplus and solution cessation debt risk back to the Council
Already aware of the risk, First Actuarial had been carrying out regular valuations for some time, to monitor WCH’s LGPS funding position and identify the best time to take action. They had also advised WCHO to open up a line of communication with the Council about the cessation debt.
First Actuarial attended a number of WCH’s Board meetings. “They guided Board members, none of whom had specialist knowledge of pensions, through this complex area,” says Paul.
“First Actuarial provided regular reviews and helped us map out various options,”
continues Paul. “And as the number of active participants in this scheme decreased,
we worked more closely with First Actuarial, as we knew we were fast approaching a decision point.”
Having considered various strategies, such as increasing the number of employees
in the LGPS – which would have both increased the liability and extended its duration – First Actuarial took a step back to think about the problem more creatively.

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