TUPE and the admission process
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Outsourcing and TUPE
If a best value employer lets a contract, the TUPE transfer is governed by the Best Value Staff Transfers (Pensions) Direction 2007 which provides pension protection for the employees of those authorities where a service is contracted out, and the staff performing that service are TUPE transferred to a new employer.
Pension protection can be in the form of either continued access to the LGPS, or access to a broadly comparable scheme which has been approved by the Government Actuaries Department.
Continued access to the LGPS is brought about by way of an admission agreement between the Administering Authority and the new employer.
The Administering Authority will need to liaise with the scheme actuary to set the new employer rate and then draw up the admission agreement.
This process can take some time and early engagement with the administering authority is important. The letting authority should take pension responsibilities into account early in the process, especially when the tender specification is drawn up.
In consultation with the contractor, the letting authority will need to make the necessary assessments, concerning potential financial risks to any contract with the contractor, which may have implications for the ongoing provision of the service or function being transferred.
Where an admission agreement is to be entered into, it should be noted that any closure cost due to pensions that cannot be met by the contractor (due to insolvency for example) will fall to the letting employer.
You should consider requesting a bond when the admission agreement is entered into in case the contractor defaults in the future. Close liaison with the Administering Authority will also be needed.
Admission agreements are usually fully funded at the point of transfer, but the contractor normally bears the subsequent investment risk.
In some cases, the letting authority may retain the investment risk and allow the contractor to pay a fixed employer's contribution rate; this is known as a pass-through agreement. A pass-through agreement will usually be balanced by the contractor giving a significant concession in price.
Admission agreements can be open or closed. Closed agreements will include a list of the members who are entitled to membership of the LGPS and only those listed can join/remain members.
Open agreements allow a category of employees to join, not only the members who transferred, allowing staff movement, though normally only those members who will work on the contract can become members.
Closed agreements are generally more expensive in relation to contribution rates as there will be no new members to replace those who leave – though the liability is capped for the same reason.
Where a contractor wishes to offer membership of its own pension scheme, the letting authority will need to ensure that the scheme is broadly comparable to the LGPS and should discuss with the Administering Authority the bulk transfer terms to be offered to potential bidders.
The new Fair Deal policy covers schools where the employer is not a best value authority e.g. academies, free school, foundation schools, foundation special schools and voluntary aided schools as, although such schools are maintained schools, the staff in those schools are employees of the governing body of the school, not the local authority.
These schools should therefore make sure they are conversant with the requirements of the new Fair Deal.
Employees in a maintained community school, maintained community special school, maintained nursery school or maintained voluntary controlled school are employees of a local authority, and so remain covered by the Best Value Direction, rather than the new Fair Deal.
Where a school is considering outsourcing a function, they should contact the Administering Authority for advice.
Please remember it is important to do your due diligence before letting a contract.
Admission Process for Employers
Admission bodies are employers that have applied to participate in the scheme under an admission agreement; usually employers such as charities or contractors. Admission bodies usually provide a public service which is closely linked to the functions of a local authority.
To start the Admission process, Surrey Pension Fund will need to liaise with the scheme actuary to set the new employer rate based upon the accurate data of the employees who are eligible to be in the LGPS, provided by the employer.
Although Surrey Pension Fund have a lot of admission agreements, we do not have a dedicated lawyer. In order to avoid unnecessary delays, it is important to start the process before the contract is let.
New employers who wish to join the Surrey Pension Fund as an Admitted body need the items listed below:
- An application
- An understanding of the charges involved with the application; including, but not be limited to legal and actuarial costs
- Knowledge of the statutory duties a fund employer must fulfil
- The ability to complete the administration requirements and data exchange within fund and Regulatory timetables.
To start your application, please contact the Surrey Pension Fund at pension.fund@surreycc.gov.uk
The application form provides a range of options and you should consider them all carefully.
In the case of TUPE, both the letting authority and the contractor must sign the application form.
The letting authority must provide accurate data for all the employees who are eligible to be in the LGPS, not just the active members.