Outsourcing

Pensions and TUPE

Under TUPE transfer terms, the pension provision of the potential transferees must be considered by the letting Local Government Employer who is considering the outsourcing. You must contact the Pensions Section as early as possible in the process, and you will be given all the details which you will need to proceed further.

Academy TUPE Outsourcing

Background:

Where an Academy enters into an outsourcing contract with a private sector contractor to provide services such as cleaning or catering, the Academy is expected to follow the principles set out in the HM Treasury ‘New Fair Deal’ guidance and protect the pension rights of any transferring public sector employees who transfer to the new contractor under TUPE. This applies whether the transferring staff are currently employed by the Academy or by another public sector body, such as the Local Education Authority.

New Fair Deal requires any transferring employees who are active members of or eligible to join the LGPS, to be provided with continued access to the LGPS under their new employment with the private sector contractor. This requires Leicestershire County Council (as the administering authority of the Fund), the Academy (as the contracting body) and the contractor (as the new employer) to enter into an Admission Agreement.

Scenario:

The catering staff were legally entitled to membership of the LGPS when employed by the Council to provide catering services. The Academy is free to take decisions in relation to its provision subject to the relevant statutory frameworks. This includes in relation to the provision of school meals. The Council effectively acts as a catering service provider to the Academy.

The Academy then decides to outsource its catering provision and, following a procurement exercise, it appoints a private sector contractor under a services contract. This results in a TUPE transfer of catering employees from the Council to the new contractor. The new contractor effectively become responsible for the LGPS membership of the Council employees. There will be a transfer of assets from the notional account of the Council to the notional account of the new contractor within the Fund (usually on a fully funded basis). From that point, the new contractor become responsible for the liabilities relating to that membership and the Council ceases to be responsible. From this point, the Council’s obligations in relation to its employees effectively ends.

Conclusion:

The above suggests that the Academy is legally responsible for the provision of the catering function within the Academy. The schools are not maintained by the Local Authority and use Leicestershire Traded Services as their catering provider. The Academy have chosen to outsource their catering to another external provider. The Local Authority or Leicestershire Traded Services has had no bearing on this decision and therefore, the Academy is deemed the outsourcing employer. Therefore, the new contractor qualifies for admission to the Fund on the basis that they are bodies providing a service in connection with the exercise of a function of the Academy as a result of the transfer of the service by means of a contract (let and entered into by the Academy).

Process:

To gain admitted body status within Leicestershire Pension Fund, an admission agreement is needed to be signed and completed by way of a deed. Pensions will need the TUPE enquiry form and list of members spreadsheet to be completed by the Trust which includes all members transferring.

Once Pensions receive the above information, we will be able to start drafting the admission agreement. Once drafted, we will circulate this for approval to all parties.

The funds standard admission route is pooling pass through. In a “pass through” arrangement the bulk of the LGPS risk would remain with letting employer though there might be a need for the new contractor to take out a bond to cover some of the pension risk. The new contractor would be responsible for paying the employee and employer contributions into the Fund as members would remain in the LGPS, there would be no termination valuation at the end of the contract as the members would have remained with the letting employer as far as the Fund is concerned.

Find the attached wording for academies for further details:

Draft Bond Agreement PDF, 486.91 KB

Draft Admission Agreement- Pooling pass through PDF, 814.4 KB

Transferring to an employer that does not provide the LGPS

Employers wishing to start the legal and financial process to allow a contracting employer to operate and administer the Leicestershire LGPS need to contact the Pension Section as early as possible as the entire process can take a few months.

In order to request the information that you need to proceed with the transfer, please complete and return one of these two enquiry forms.

LGPS Employer outsourcing enquiry form pass through PDF, 1.59 MB

LGPS Employer outsourcing enquiry form liabilities transfer to company PDF, 2.05 MB

Accompanying this form, we’ll need the names and NI numbers of all the members (and non-members, who are not in the scheme at present but who have the right to join the scheme if they wish) transferring.

Costs involved to the outsourcing employer is in the region of £1500 + VAT - £3000 + VAT (which includes legal and actuarial costs) to set up the new contractor as an admitted body. All charges expect the cessation charge are payable by the letting employer in pass through arrangements. The cessation charge is payable by the contractor of £500 +VAT.

You may also find a copy of the template for a pass-through admission agreement and a pass-through bond. These are for reference only to show what will need to be agreed to when signing the documents. Once we have received the completed enquiry form, a draft version of the admission agreement and bond (if required) will be emailed out.

Admission agreement pooling pass through template PDF, 687.12 KB

LGPS Bond template PDF, 321.76 KB

Reference to the briefing note and discussions between the letting employer and the bidding company (if one has already been selected) will help you decide which type of admission route you elect to take. Once the admission route has been decided on, which will be either a ‘pass-through’ admission, or the method whereby the liabilities are transferred method, please send us the appropriate form to commence the administrative process.

Pass-through Grid

Please ensure that you have read the briefing note in full before coming to a decision. By way of a short guide of the main differences, this pass-through grid will also help you:

Pass-through grid

Scheme member
Pooling pass-through	No difference, member stays in the LGPS.
Fixed contribution rate agreed pass-through	No difference, member stays in the LGPS.
Liabilities transferred to company method	No difference, member stays in the LGPS.
Letting employer
Pooling pass-through	Easier process and employer rate known at outset without waiting for actuary.
	Lower actuarial fees as no actuarial quote required.
	All bids can be priced on a similar basis without factoring in pension 'extra' costs.
	Suits short term or smaller contracts.
	Could get a surplus at the end depending on funding performance.
	Possible cross subsidy as true rate is not being paid.
Fixed contribution rate agreed pass-through	There will be an actuarial cost to calculate a bespoke rate.
	Rate won't be immediately available.
Liabilities transferred to company method	Hands responsibility for all future liabilities to company.
Company
Pooling pass-though	Absolute certainty for the company of financial outlay - no 'nasty surprises'.
	Not subject to volatile funding conditions.
	No termination valuation necessary.
Fixed contribution rate agreed pass-through	Absolute certainty for the company of financial outlay - no 'nasty surprises'.
	Not subject to volatile funding conditions.
	Rate won't be immediately available.
	No termination valuation necessary.
Liabilities transferred to company method	Company usually pays a far higher employer rate that the letting employer's rate.
	This could be factored into the price, possibly a disadvantage when compared to other bidders with comparable schemes already.
	Company responsible for future liabilities that won't be known until the end of the contract.
	Employer rates can vary more for companies between scheme valuations.
	Termination valuation at the end of the contract to pay for and possibly to settle, however, this will not be known until the end of the contract.
	A full bond will be required which can cause delays and may be difficult to obtain for some companies.

All the legal documents and bond (if required) must be completed and all legal and financial obligations met, before the staff members move across.

Transferring to another employer that provides LGPS

If the transfer is between two employers that both already operate the LGPS within the Leicestershire Fund (e.g. local councils, academies, some colleges) the process is much simpler and there are no further legal charges involved when small numbers of staff transfer over. This is because the members’ LGPS pensionable service will automatically resume with the new employer by right, their pension entitlement being unaffected by the change. Small numbers of transferring members will be dealt with internally by the Investments team who will switch the liability for their pensions from the ceding employer’s pension fund to the new employer’s pension fund. However larger numbers (more than 10) would have to go to the actuary for this to be done correctly, and there would be an actuarial charge of £750 plus VAT in this instance.

Employers are asked to alert the Pension Section at the time with a list of transferring members and the transfer date in order that pension records can be updated correctly, and that these staff stand out from other leavers and new starters whom we are automatically notified of.

Charges and fees

The following charges apply as at January 2025:

Employer work

Passthrough work:

Upon admission £1500 + VAT to £3000 + VAT
At end of contract £500 + VAT

Academy work:

New Academy calculations £1,750 + VAT
Calculation of asset allocation for existing Academy moving in/out of a MAT £1,750 + VAT

Cessation valuations:

Short form report (i.e. pass-through) £500 + VAT
Rollforward (indicative) £500 + VAT
Full valuation (indicative and final assessments) £2,750 + VAT
1/2 hour meeting with the Fund Actuary £350 + VAT
Summary Report £300 + VAT
Exit Credit Considerations Paper £2,850 + VAT
Default additional surplus calculations £750 + VAT