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Overview
An organisation becomes an admission body:
- as a result of securing a contract to provide a service or function from an employer which participates in the Local Government Pension Scheme (LGPS) and involves the TUPE of LGPS eligible staff.
- when they provide a public service and have sufficient links to a current LGPS employer to be regarded as having a 'community of interest'.
In both cases, their admission is subject to:
- employing staff eligible for the LGPS
- applying for admission body status
- a report being commissioned from our Fund's actuary
- an admission agreement being signed by the contractor, the original employer and the administering authority of the Fund
The outsourcing employer or the new contractor can notify us about arrangements using our initial admission body enquiry form.
Costs
New admission bodies must:
- meet all of the external costs incurred by us in processing the admission
- be prepared for a higher employer contribution rate than that paid by the letting authority
- be prepared to potentially provide a bond
The outsourcing process
We’ve provided some important information for our LGPS employers thinking about:
- outsourcing a function to an external contractor
- outsourcing a service to an external contractor
- tendering a contract
Here’s some of the main responsibilities and issues for an outsourcing employer to consider:
Communicate pension responsibilities
You need to make potential bidders aware of their responsibilities in respect of protecting LGPS membership for their prospective employees.
Get legal advice
Check with your legal adviser. You need to make sure that pensions information and costs are included in the tender and contract.
Admission body status or broadly comparable scheme
Your successful bidder will need to either:
- apply for admission body status to ensure they are protecting LGPS membership for the transferring employees
- source a broadly comparable pension scheme for eligible transferred staff. The option to provide a broadly comparable scheme only relates to contracts outsourced from a “Best Value Authority"
Give TUPE information to your employees
You need to give information to your transferring eligible staff about the impact of the transfer on their pensions.
Understand responsibility
You need to understand that the ultimate responsibility for pension matters relating to the transferring staff and unpaid liabilities to the Fund remains with the original scheme employer.
Risk sharing
You need to consider all risk sharing options. This includes:
- whether you would need the contractor to arrange a bond
- what level of bond would be required to cover any liabilities to the Fund
- whether you would act as a full guarantor
Funding position and liabilities
You should be aware of your successful contractor’s opening funding position and whether any of your liabilities will be transferred to them.
Legal agreements and bonds
You’ll need to get in touch with a legal adviser in preparation for checking the admission agreement and any bond or guarantee agreement.
Payroll information
You’ll need to provide payroll information to us for transferring your LGPS members.
Your contractor’s performance
You should monitor your contractor's performance as a scheme employer.
Plan for the end of the contract
You’ll need to have a plan for what will happen with the LGPS eligible staff at the end of the contract.
New contractors becoming LGPS employers
New contractors must normally provide continued access to the LGPS when an outsourced contract involves the transfer of LGPS eligible staff.
For transfers from “Best Value Authorities” only, the contractor can determine whether to continue to provide LGPS membership, or a broadly comparable scheme.
The following points summarise some of the main issues and responsibilities for a contractor taking on an outsourced function or service and maintaining LGPS membership for transferring staff eligible for the scheme:
- Submit the initial admission bodies notification form to the Fund
- Understand the responsibilities and costs associated with being a scheme employer
- Liaise with the outsourcing employer regarding risk sharing options and your opening position into the LGPS
- Complete an application for admission body status
- Provide all necessary member data to the Fund
- Complete the relevant authorised signatories forms
- Provide adequate LGPS training and resources to your payroll and HR staff
- Submit payments and contribution reports to the Fund
- Set your employer discretions policy within one month of becoming a scheme employer
Protecting LGPS membership
New contractors must provide transferring employees with continued access to the LGPS or a broadly comparable scheme. This requirement differs depending on whether the employer outsourcing a contract is a 'best value authority', or one which falls under other areas of the public sector.
Transfers to a new employer via TUPE include protections for pay, holiday entitlement and other terms and conditions, but not membership of a public sector pension scheme. The government introduced measures which sit alongside TUPE to ensure that pension scheme membership is protected when a scheme member transfers to another employer.
The new contractor must provide the following for transferring staff who were eligible for the LGPS before the transfer date:
Contracts taken on from best value authorities
'Best value authorities' are listed in Section 1 of the Local Government Act 1999 and include:
- most local authorities
- police authorities
- fire and rescue authorities
The Best Value Transfer (Pensions) Direction 2007 was introduced to protect pension benefits of best value authorities’ employees outsourced as part of a TUPE arrangement.
It ensures that transferring employees are provided with rights to pension benefits that are the same as, broadly comparable to, or better than those they had before the transfer. This requires that the contractor provides either continued access to the LGPS or a 'broadly comparable' pension scheme. The new scheme must receive a ‘broad comparability certificate’ following an assessment by the Government Actuary’s Department (GAD). The certificate must be provided to the outsourcing employer and pension fund.
This means that the new employer must either keep transferring employees in the LGPS under an admission agreement or give the employees membership of an occupational pension scheme that has been certified as being broadly comparable to the LGPS.
Contracts taken on from other public sector employers
The New Fair Deal is a pension protection which was introduced in 2013. It’s set out in the HM Treasury guidance 'Fair deal for staff pensions (October 2013)’ and requires that a contractor guarantees continued access to the LGPS. It sets out how pension issues are to be dealt with when staff are compulsorily transferred from the public sector to independent providers delivering public services.
The new fair deal policy doesn’t apply to the contractor’s employees who were not compulsorily transferred from the public sector.
Under the guidance the new contractor must keep the transferring employees in the LGPS and enter into an admission agreement with our Fund.
You can find the new Fair Deal guidance on the UK government website.
How to become an admission body
The most common way that an organisation becomes an admission body is a TUPE arrangement, usually as a result of:
- the outsourcing of a contract from an existing LGPS employer to an outside organisation (such as a private contractor, other private sector or voluntary sector organisation)
- the creation of a new company or charity from an existing scheme employer (normally a local authority) to be responsible for the delivery of some of its functions or services
- having a community of interest with a local government employer
An organisation's eligibility to become a scheme employer is determined by Derbyshire County Council in its role as the administering authority of the Fund.
The Pensions and Lifetime Savings Association promotes best practice for pension schemes. They’ve produced a useful guide called navigating entry into the LGPS for contractors to help you understand how to become an employer in the LGPS.
The onboarding process
The following steps are required to admit an employer to our Fund:
Step 1
- Complete the initial admission bodies enquiry form. This can be completed by the outsourcing employer, or the successful contractor.
- The new employer receives a welcome email and application form from our Fund.
- We’ll request employee information from the outsourcing employer.
Step 2
- Our Fund's actuary prepares an opening position report.
- We’ll issue the report to the new employer, plus other relevant forms.
- Admission costs will be recharged to the new employer.
- The outsourcing employer and the Fund determine the level of security to be in place.
Step 3
We’ll issue the admission agreement issued for signing.
Upon receipt of the signed admission agreement, we’ll issue a draft bond or guarantor agreement if required.
Step 4
- Fully signed admission agreement issued to all parties.
- Bond or guarantor agreement issued for signing.
- Final bond or guarantor agreement issued to all parties.
Funding and risk sharing arrangements
Outsourcing employers and their contractors are advised to consider and understand the LGPS funding arrangements. We recommend that appropriate advice and guidance is sought, and agreements for related risks and responsibilities are included in the final contract.
Funding the LGPS
The LGPS is funded by member contributions, employer pension contributions and earnings from investments.
Each employer’s funding position is individually tracked and monitored during its participation, with the aim of it being funded sufficiently to pay retirement benefits for all current members and former scheme members.
Where assets don’t meet the value required to cover the pensions rights which scheme members have built up, the employer’s funding position is in deficit. Alternatively, where assets outweigh the pension liabilities, it is in surplus.
Every three years, our actuary undertakes a mandatory valuation of each employer’s funding position, which may result in the initial employer contribution rate being adjusted.
Risk sharing arrangements
When a new employer becomes an admission body, it is agreeing to its financial obligations and the risks which participation in the LGPS brings.
The obligations include:
- paying employer contributions, normally at the rate determined by the actuary
- any pension shortfall costs (for instance when employees are made redundant)
- at the point of exiting the LGPS, any payment which may be required to cover a deficit in funding (or arrangements should there be a payment due in respect of a surplus funding position)
When an employer outsources part of its functions or services, it can agree to share the risks associated with being an LGPS employer with its chosen contractor.
Risk sharing arrangements agreed between the parties are normally included in the service contract and administered outside of the Fund.
There are various risk sharing mechanisms that can be agreed such as 'passthrough' or 'cap and collar' where the outsourcing employer agrees to take some or all the pension risks, such as deficit payments. Where such arrangements aren’t agreed, the contractor is responsible for its own financial obligations.
The employer who outsourced the contract remains the 'guarantor of last resort' where the contractor fails to fulfil its payments to the Fund.
Outsourcing employers and contractors should always seek appropriate legal advice on any risk sharing arrangements.
The actuary report
Following the receipt and check of the data about transferring staff from the previous and new employer, we provide information to our actuary to request a mandatory report, which sets out:
- a valuation of pension liabilities for the transferred employees
- a recommendation for the employer’s contribution rate to the fund
- an assessment of risk reflected by the recommendations for the value of a bond or indemnity
The value of bond or indemnity required to be put in place by the new admission body must be agreed by the outsourcing employer and the Fund.
Preliminary report
Upon request, the actuary will prepare a preliminary report to provide an initial assessment of the employer contribution rate and bond, or indemnity required. This enables the outsourcing employer to quote estimated pension related costs to tender applicants. This report incurs additional actuarial charges and is provided in addition to the mandatory report which will be prepared when the contract has been confirmed.
Exiting the LGPS
An employer ceases or exits from the LGPS if:
- they have no active members left and the Fund determines that they'll no longer be able to admit any new members to the Fund or
- as the result of the completion or termination of the contract with the outsourcing employer.
At the cessation or exit date, the actuary prepares a report of the funding position and determines the value of any deficit or surplus. We'll consider each case individually and conclude the amount of deficit which must be paid, or in the case of a surplus, the amount to be paid.
Where a risk sharing arrangement is in place, the details of the agreement will be considered by the Fund.