Council’s legal department fends off quick win for company suing pension fund for £6.5million

Northampton Borough Council's legal department has been working to defend against a claim from the former environmental services contract holder
Northampton Borough Council's legal department has been working to defend against a claim from the former environmental services contract holder

Two Northamptonshire councils have successfully jumped the first hurdle in a £6.5million lawsuit against their pension fund by a former contract holder.

Northampton Borough Council (NBC) and Daventry District Council (DDC) were tied into a £7million-a-year contract with Enterprise Managed Services Ltd (EMS), which saw them collect bins and clean streets between 2011 and 2018.

But since the end of the contract last summer EMS – which is now part of the Amey group – has claimed that it is entitled to around £6.5 million as an ‘exit credit’ from the Northamptonshire Local Government Pension Fund (LGPS).

Although the legal claim is against Northamptonshire County Council, which is the administering authority for the fund, the assets are actually those of NBC and DDC, both of which have joined the county in defending against the claim.

And NBC’s legal department has resisted an application for a summary judgement, which would have simply awarded the sum to Enterprise. Instead, it has been established that the councils have a basis on which to defend against the claim.

The legal case now appears to be in limbo however as the government considers responses to a consultation it held on changes to local government pension schemes. The consultation concluded at the end of July and ‘exit credits’ formed a key part of it.

The government could potentially decide that legislation was not clear at the time, which could effectively shut down the claim from Enterprise. However, if no changes result from the consultation, then the councils would have to defend against the claims.

A spokesman for Northampton Borough Council said: “When councils employ fixed-term contractors and staff are transferred across from a previous contract, appropriate arrangements need to be made for pension provision.

“Previously when pension funds performed poorly, employers making the contributions were required to make higher payments but there was no dividend payable to the employers when those funds performed well.

“Recent legislation introduced by government sought to redress the balance but an unforeseen consequence was that contractors who had not made contributions could potentially benefit.

“In this case, the two commissioning councils took on responsibility for the contributions rather than Enterprise, therefore retaining the risk.

“During the contract, the fund began to perform very well which resulted in a surplus of assets of £6.5 million. Despite having made no contribution toward staff pensions throughout the life of the contract, Enterprise is attempting to lay claim to the surplus through what it sees as a loophole in the new government legislation.

“Both councils, along with Northamptonshire County Council which administers the fund, took legal advice from leading counsel who is an expert in this area of work and, as a result, are collectively defending the claim.

“If the claim is successfully resisted any surplus refunded would offset future pension fund contributions by the councils.”

A spokesman for Amey has previously told the Local Democracy Reporting Service: “As an exiting employer, we are entitled under the current regulations to payment of an ‘Exit Credit’ if a surplus in the relevant pension fund is identified. It is regrettable that we now find ourselves in court to secure this Exit Credit.”