Pension considerations for Scheme Employers which are considering outsourcing a function to a contractor and transferring staff TUPE

When project-managing an outsourcing exercise Scheme Employers must determine their pensions obligations before going out to tender. Failure to do this at an early stage may cause problems later and could delay the transfer.

The potential pensions obligations are contained in several Government directions, policies and codes of practice. Outsourcing Scheme Employers must give consideration as to whether or not these apply:

• Some Scheme Employers (including Local Authorities) are Best Value Authorities which come under the statutory Staff Transfers (Pensions) Direction
• Some Scheme Employers which are public sector employers may determine that the Fair Deal policies and the Staff Transfers in the Public Sector Statement of Practice apply
• When retendering existing contracts, some Scheme Employers may come under one of the Codes of Practice on Workforce Matters (now withdrawn for new outsourcing exercises)

Employers unclear as to their pensions obligations when transferring staff under TUPE should take legal advice.

Where Best Value and Fair Deal obligations exist - the outsourcing Employer should ensure that staff transferred under TUPE have access to either:

• Continuing Membership of the LGPS; or
• A GAD-certified Broadly Comparable Pension Scheme (the outsourcing contract would normally be expected to include a bulk transfer arrangement for accrued LGPS Membership).

To avoid potential legal consequences from failing to fulfil pension obligations, appropriate pension arrangements must be in place on the date on which the service contract starts and staff transfer.

Avon Pension Fund has drafted a guide 'Project Managing TUPE transfers when outsourcing to a Contractor' giving an overview of pension implications and procedures for LGPS Scheme Employers participating in the Fund.

Pension considerations for Scheme Employers which have already outsourced a function to a Contractor – Although the Codes of Practice on Workforce Matters (aka the 'Two Tier Codes') have been withdrawn for new outsourcings, the provisions will continue to apply to those existing service contracts which came under one of the Codes when they were let; and the outsourcing Scheme Employer should continue to monitor that any new staff employed to work on their service contract have access to Membership of either:

• The LGPS; or
• A Final Salary Defined Benefit pension scheme; or
• A Defined Contribution/Stakeholder pension scheme where member contributions are matched by the employer up to 6%.

Going out to tender when pensions obligations exist - the outsourcing Scheme Employer will normally wish to include the cost of a contractor becoming an Admission Body in the Avon Pension Fund of the LGPS in their tender document. They must appoint a Lead Officer to liaise between the parties to the outsourcing contract and the Fund. The procedure which the Lead Officer must follow to obtain the cost of offering continuing Membership of the LGPS is outlined in Avon Pension Fund’s 'Project Managing TUPE transfers when outsourcing to a Contractor' guide. The Lead Officer should factor a timescale of several months for establishing this cost into their project.

Document Resources

Government Documents

Best Value Authorities:

Best Value Authorities Staff Transfers (Pensions) Direction 2007 - Secretary of State for CLG (74kb) Local Government Act 1999 (175kb) Guidance - 'Admitted body status provisions in the LGPS when services are transferred from a local authority or other scheme employer' (2009) Secretary of State for CLG (229kb) Code of Practice on Workforce Matters on Local Authority Service Contracts (Annex D)(2003) - Office of the Deputy Prime Minister (197kb) (now withdrawn for new outsourcing contracts) Alternative Disputes Resolution Procedure - Office of the Deputy Prime Minister (65kb)

Other Public Sector Employers:

'Fair Deal for Staff Pensions' (1999) HM Treasury (33kb) 'Staff Transfers in the Public Sector Statement of Practice' (revised 2007) Cabinet Office (389kb) Code of Practice on Workforce Matters in Public Sector Service Contracts (2005) Office of Government Commerce (214kb)(now withdrawn for new outsourcing contracts)

Broadly Comparable Pension Schemes:

Assessment of Broad Comparability of Pension Rights: Statement of Practice by the Government Actuary (1999) GAD (28kb) LGPS Broad Comparability - clarification of definition of minimum pension age (2008) GAD (72kb) Changes to revaluation in deferment and validity of Certificates of Broad Comparability (2009) GAD (26kb) 'Fair Deal for Staff Pensions: Procurement of Bulk Transfer Arrangements and Related Issues' (2004) HM Treasury (126kb)

Avon Pension Fund Documents

Guide - 'Project Managing TUPE transfers when outsourcing to a Contractor' (522kb) Form - 'Appointment of Pensions Lead Officer for a TUPE Exercise' (207kb) Form - 'New Admission Body Pension Cost Application Form' (211kb) Form - 'Bond Questionnaire' (214kb) Document - 'Draft Admission Agreement' (577kb) Document - 'Draft Bond Agreement' (643kb)