Outsourcing Factsheet Are you considering outsourcing a function of your organisation which contains members of the LGPS? If the answer is yes, then this factsheet should assist you in ensuring that the proper consideration is given to pension issues and prevent problems further down the road. It includes information on: When to contact the LPFA; What your responsibilities are as the outsourcing employer; What needs to be done at each stage to ensure member s benefits are protected; and Legal issues you should consider as part of your outsourcing exercise When should you contact LPFA? As soon as you are aware of a potential outsourcing exercise you should contact LPFA as a prospective tenderer will not be in a position to make an informed bid to provide a service unless the costs of participating in the LGPS are included as part of the tender documents. As the outsourcing scheme employer you should obtain an indicative employer contribution rate and bond from the Pension Fund to include in the tender documentation before commencing a procurement exercise. A flowchart illustrating the process that needs to be followed at the tender stage is included at the end of this document. Your responsibilities As the outsourcing employer you have a number of responsibilities, both to your members and the Fund, throughout the process: Seek legal advice on pension protection for staff TUPE transferring; Contact LPFA at the earliest opportunity to make us aware of the potential and to request an indicative contribution rate for the tender documentation;
Obtain agreement from your Board, or equivalent, to guarantee to cover the liabilities of the contractor should they be unable to meet their obligation for any reason; Determine whether you will require a bond from the contractor to cover the guarantee you are providing; Establish if Fair Deal applies or if you are a Best Value Authority; Establish whether the successful contractor will seek admission to the fund or a broadly comparable scheme; Contact the LPFA to provide details of the successful contractor, their contact details and their chosen route with regard to pensions. Ensure they have a valid GAD certificate, if the contractor to follow the broadly comparable route; Act as guarantor and a party to the admission agreement, if the contractor seeks admission in the LPFA fund; and Provide LPFA with details of the member s who transferred once the transfer has taken place, to ensure their records are updated and accurate. A flowchart illustrating the process that needs to be followed at the contract stage is included at the end of this document. The pension options Pension protection can be achieved by enabling transferring employees to either: Remain members of the Scheme by the contractor obtaining admitted body status in the Pension Fund for the duration of its contract with the outsourcing employer; or Joining a pension scheme that is broadly comparable to the Scheme is an option for outsourcings where Fair Deal 2013 does not apply. Broad comparability must be certified by the Government Actuary s Department (GAD). This does not require the contractors pension scheme to be identical to the Scheme but it does mean that taking all of the differences between the schemes into account, the effect should be that no identified individual or group of individuals in the transferred workforce should suffer material detriment overall in terms of their future accrual of pension benefits under the new employers scheme. It is the responsibility of the outsourcing employer to ensure that their contractor demonstrates that the pension scheme it is proposing to offer to transferring employees has been certified by GAD as broadly comparable to the LGPS. Further information on obtaining certification can be found on the GAD website (www.gad.gov.uk).
Legal considerations If your organisation is thinking of outsourcing a service you should seek legal advice on whether or not you are under an obligation to ensure pension protection for the staff TUPE transferring to a new employer and whether or not Fair Deal applies. It is particularly important for schools and academies to be aware of the effect of Fair Deal 2013 on any current and future outsourcings they may carry out, as they have previously not been caught by this guidance. Protecting the pensions of public sector staff transferring to outsourced service providers is fundamental and should be included as an integral part of the overall contract discussions and considerations. It is vitally important that officers who have responsibility for, or have involvement in, best value procurement or other forms of outsourcing discuss the pension implications of outsourcing staff with the administering authority at an early stage of the tendering process. The outsourcing scheme employer is responsible for informing the Pension Fund of any transfer of staff due to outsourcings so that membership records can be accurately maintained and the necessary arrangements can be made for admission to the Pension Fund in advance of the transfer of staff to the new employer. This is to ensure that members pension benefits are fully protected, that the scheme employer and the contractor are aware of the impact of the outsourcing on their Pension Fund liabilities and the Pension Fund as a whole is adequately protected. For Further Information Please contact: Tony Williams Employer Services Manager Email: tony.williams@lpfa.org.uk Tel: 0207 369 6237
The Tender Stage The flowchart below illustrates the process that needs to be followed at the tender stage, to ensure that the pensions issue is fully considered in the tender documentation. Outsourcing employer notifies the Fund of outsourcing at tender stage The Fund requests employee information from outsourcing employer Actuary undertakes actuarial valuation of liabilities to determine employer contribution rate and risk assessment if applicable The Fund passes this information to the outsourcing employer for inclusion in the tender specification Outsourcing employer determines contractual arrangements for pension liabilities and need for a bond Please note that the LPFA should be contacted at least 6 weeks prior to contract notice to allow sufficient time for the necessary calculations to be carried out.
The contract stage Under the Local Government Pension Scheme regulations, admission agreements are required to be in place by the start of the service contract. The timescales for finalisation and sealing of the admission agreement will depend on whether an updated valuation is required and amount of negotiation over the terms of the admission agreement. Costs associated with this will be recharged to the parties involved in the admission agreement. Outsourcing employer notifies the Fund of award of contract including name of successful bidder, contract details and details of (final) transferring employees. Information to be provided in specified format If necessary, Actuary undertakes updated actuarial valuation of liabilities to determine employer contribution rate and risk assessment Information passed to the Fund s legal representatives to issue draft admission agreement and letter of guarantee or bond (as applicable) to contractor and outsourcing employer Admission agreement and letter of guarantee or bond (as applicable) agreed, signed and sealed by all parties. These documents should be signed in advance of the commencement of the service contract and effective date of admission agreement Contractor set up as a new employer in the Fund. Contractor informed about arrangements for paying contributions to the Fund and starter information required from employees/employer (to be returned within 1 month of effective date of agreement)