The London Pensions Fund Authority (LPFA) is consulting employers in the pension fund on new sector-wide covenant checks for colleges and universities, which are to be implemented this autumn.
The LPFA, which runs a £4.8bn (€6.1bn) multi-employer, public-sector pension fund, said it was also planning another consultation on charities and housing associations in the next few months.
Tony Williams, the authority’s employer services team manager, said: “Fairness to all employers in the fund is the key driver for this covenant check approach.”
If an individual employer in any local government pension fund cannot meet its liabilities, he said, there is a risk those liabilities will then fall on other employers – the local authority and ultimately taxpayers.
“It is only right that, within our fund’s overall governance procedures, we do all we can to understand the strength of employer covenants and minimise risk,” said Williams.
He said having a better understanding of the challenges presented by each sector and employer meant the LPFA could try to get assurance or security from the employer, or else set employer contribution rates at a level reflecting their covenant strength and aim to make sure they were fully funded as quickly as possible.
The authority said the move to sector-wide covenant checks was a next step following individual employer checks.
Requirements for the sector-wide checks had been developed in conjunction with government funding bodies such as the Higher Education Funding Council for England and the Skills Funding Agency, the LPFA said.
In the individual employer covenant checks this year, the authority said it took a new risk-based approach as part of the 2013 valuation process.
As a result of this approach, it said it was now implementing security arrangements totalling £311m, which had been secured as part of the process.