Outsourcing staff

Schools and academies continue to explore different service models.

Where the outsourcing of services involves the TUPE transfer of any employees who are members of, or are entitled to be, members of the Local Government Pension Scheme (LGPS), there will be pension implications which should be considered as part of the tender process.

The Pension Fund has, unfortunately, experienced a handful of cases where schools and academies have let contracts and the pension implications have not been considered at all or, if they have, it was too late in the process and led to unnecessary delays and complications.


 

Before going to tender  Back to top

If you are considering letting a contract to an external provider, you must contact the Pension Fund who will advise on the contractor's admission basis and potential employer contribution rate.

This will enable the school or academy together with the contractor to factor in the pension costs into the procurement process, so that all bidders are aware of pension risks and the requirements to be an admitted body in the LGPS.

This will allow bidders to correctly price pension costs into their bid.


 

Pension implications and costs that schools and academies must consider before outsourcing staff  Back to top

Legal requirement - to protect employee's pension entitlement

Employees who are outsourced to an external provider are protected under the HM Treasury legislation. This means the schools or academies must ensure the staff transferred have continued membership of the Local Government Pension Scheme. Continued membership of the LGPS is achieved by the external provider becoming an admitted body of the Staffordshire Pension Fund by entering into an admission agreement.

Admission agreement

Successful contractors who wish to be admitted to the LGPS will be required to enter into a formal admission agreement. This agreement is a tripartite agreement between the:

  • academy or school
  • contractor
  • Pension Fund

The contractor and those employees covered by the agreement will be subject to the standard LGPS legislation and all existing employees who provide the current service will be required to be enrolled into the LGPS by the new contractor.

There is a charge for setting up an admission agreement which are set out below for the admission to the Fund.


 

Other considerations  Back to top

Re-letting an existing outsourced contract

The same pension protection must be provided if employees transfer to another employer as a result of re-letting the contract. The re-let service with the new contractor must provide that the new contractor must secure continued membership of the LGPS for each transferring original employee.

Once again this is achieved by the contractor becoming an admitted body of the Staffordshire Pension Fund by entering into an admission agreement.


 

Actuarial and legal costs borne by the school or academy and the new employer (contractor)  Back to top

The Fund is mindful that the legal or actuarial costs are borne by the letting employer or new employer (contractor) and therefore explored ways to reduce and cap the legal costs. Following this review and with the approval of the Pension Committee standard legal or actuarial charges were introduced.

TUPE transfer of 10 or more employees

Legal costs

  • Non–negotiable standard admission agreement - £1,500 + VAT
  • Complex or negotiated admission agreement  - £2,250 + VAT

Initial actuarial costs

  • Pension information memorandum (employer pension contribution rate and risk assessment) - £2,300 + VAT

TUPE transfer of less than 10 employees - small employer or contractor

A small employer or contractor being admitted to the Fund is deemed to be one that has less than 10 active members and a contract length of less than 5 years.

Legal costs

  • Non–negotiable standard admission agreement - £1,500 + VAT
  • Complex or negotiated admission agreement  - £2,250 + VAT

Actuarial costs

  • Employer pension contribution calculation - £500 + VAT

In these circumstances, this type of admission will be treated as a 'pass through' arrangement, whereby the assets and liabilities remain with the letting employer at the end of the contract period. This will be the default option for small employers unless we are advised that a 'standalone' admission arrangement is preferred, in which case the costs will be in line with those outlined under TUPE transfer of 10 or more employees.


 

External service providers - LGPS pension contribution rate  Back to top

It is important to note that the new providers LGPS pension contribution rate is set following advice from the Fund's actuary and not assessed on the same basis as the existing employer contribution rate that you currently pay to the Staffordshire Pension Fund.

Pension contribution rate for TUPE transfer of 10 or more employees

This is set based of actuarial assessment of the profile of the employees TUPE transfer and their ongoing pension liabilities.

Pension contribution rate for TUPE transfer of less than 10 employees (pass-through funding applies)

This is normally 'primary rate' (not adjusted for stabilisation) of the organisation letting the contract calculated by the scheme actuary at the previous triennial Fund valuation. If your organisation is considering letting a contract on this basis, please contact Pensions Services to advise the potential contract start date. We will then be able to confirm the employer contribution rate which will apply.

Please note: different contribution rates may apply to some scheme members where a contract is let over multiple sites.


 

Outsourcing employer's LGPS checklist  Back to top

  • Liaise with the Fund to obtain pension costs to be include in the tender and bidder information and contract information pack
  • Ensure that those bidding for your contract are made fully aware of their responsibilities and on-going costs in respect of pensions, including the need to apply for 'admission body' status to enable continued access to the LGPS for transferring staff
  • Liaise with your legal adviser to ensure that pensions information (including costs) is included in the tender and contract
  • Keep the staff transferring to the new contractor informed about the impact of the transfer on their pensions
  • Acknowledge and understand that the ultimate responsibility for pension matters relating to the transferring staff, and unpaid liabilities to the pension fund, remains with you
  • Liaise with your legal adviser in preparation for checking the admission agreement
  • Be prepared to provide pay details to the Fund for affected LGPS members to the date of transfer

 

Printable version  Back to top

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