Since 13 January 2000 Local Government Pension Scheme Regulations have permitted "external providers" to enter into an Admission Agreement with a "best value authority" as an alternative to offering a broadly comparable pension scheme.
Such agreements allow scheme members who are TUPE transferred from their local government employment to an external provider of those services, to remain in the Local Government Pension Scheme (LGPS) for so long as they are employed in connection with the delivery of the outsourced service. Other staff employed by the external provider, who work in connection with the delivery of the outsourced service, may also be allowed to join the LGPS if the admission agreement so permits.
It is therefore vitally important that officers who have responsibility for or have involvement in best value procurement or other forms of potential outsourcing discuss with the administering authority (Berkshire Pension Fund) the pension implications of outsourcing staff. Pension issues should be considered when drawing up a tender specification regardless of whether or not an admission agreement or a broadly comparable pension scheme is ultimately offered. Scheme employers may even decide to only invite tenders from external providers who will be prepared to complete an admission agreement.
Failure to consult with the administering authority at an early stage will create problems and delays during later stages of the process. At different stages in the procurement process pension issues will need to be considered. An information sheet concerning pensions and procurement and the risk of pension costs is linked below:
Once a decision has been made to outsource a service as a result of a Best Value review (or for other reasons) the Pension Fund administering authority should be notified immediately and liaison arrangements put in place between the administering authority (Royal Borough of Windsor and Maidenhead) and the Scheme employer. The Scheme employer's pension liaison officer should be notified and kept informed throughout the process.
The staff involved in the outsourcing, and their representatives, should be made aware of the options available (admission agreement or broadly comparable pension scheme) during the initial consultation process. Discussion around the application of TUPE should also take place at this time.
Once the contract specifications have been drawn up, the Scheme employer may wish to seek further understanding of the pension options and gain intelligence about the pensions market and how this may be applied to the contract.
As part of the tender documentation, the pension options must be supplied along with the authority's intention to have regard to actuarial advice in relation to broadly comparable schemes. When drawing up the contract conditions the Scheme employer will need to ensure that pension rights on termination of the contract are covered as well as the pension rights of staff who may be transferred to other work with the contractor or even a sub-contractor.
Also to be included in the tender documentation is information obtained from the Pension Fund's actuary. Tenderer's will need to be made aware of the likely employer's contribution rate that they will be required to pay should they agree to an admission agreement and the level of bond or indemnity that they will be required to provide to safeguard the Pension Fund against any risk exposure that may occur as a result of the premature termination of the contract. It will, therefore, be necessary for the Scheme employer to supply to the administering authority details of the staff likely to be transferred as part of the outsourcing process. Ultimately, the actuarial data supplied will vary if the list of transferring staff differs at any time during the process.
Tenderers should be advised that, if they intend to offer a broadly comparable pension scheme, they will need to supply a current actuarial certificate to that effect. They will also need to indicate, if they intend to apply for an admission agreement, whether the admission agreement will be open or closed i.e. open to all future staff that they employ or closed to only those staff employed at the date of transfer.
Where an admission agreement is to be entered into the Scheme employer (the transferor scheme employer), the successful external provider (the transferee admission body) and the Pension Fund administering authority (RBWM) need to work together to complete the process prior to the commencement of the contract. Before the agreement can be signed it is necessary to:
- confirm whether the agreement will be open or closed;
- provide information to the Pension Fund actuary to enable a final employer contribution rate to be determined and;
- agree an appropriate bond, indemnity, or guarantee to protect the Pension Fund.
Once the agreement is in place and the contract commences the parties to the agreement must continue to liaise with one another and maintain periodic reviews of the level of bond or indemnity, the employees entitled to remain as scheme members under the admission agreement and the employer's contribution rate.
It is important that the admission agreement includes provisions for the termination of the contract and the circumstances in which this may occur. Employee's rights will need to be protected.
The following schedules should be attached to the admission agreement:
Schedule 1 - A list of eligible employees
Schedule 2 - A guarantee bond (where required)
The agreement needs to be signed and sealed by the transferor scheme employer (the outsourcing employer), the admission body (the newly admitted body) and the Pension Fund administering authority.
A standard admission agreement format has been agreed and can be found below. In order to conclude the admission agreement quickly and efficiently the transferor scheme employer should be advised and encouraged not to make any significant changes to this format.
Please find attached below the Admission Agreement documentation:
- Royal County of Berkshire Pension Fund's template admission agreement
- Admission Bodies - A Guide for Letting Employers and Potential New Scheme Employers
- An introduction to the LGPS for Scheduled Bodies
- Navigating Entry to the LGPS for Local Government Contractors
- Pensions and Procurement Information Sheet
- Pass-through Arrangements note
- List of current Admission Agreements
Other documentation that will need to be completed as part of the admission process are:
- Pension Administration Service Level Agreement (SLA)
- Employer Policy Statement
Both of these documents will be supplied by the Pension Fund. The SLA sets out how the new admission body is required to administer the LGPS on behalf of the scheme members (and potential future scheme members) that it employs.
The employer policy statement requires the new admission body to state it's policies on the adoption, or otherwise, of certain directions discretions available to it under the LGPS regulations.