Transfer of staff
These pages are for employer use only. Member information can be found on the home page.
This section is designed to give you a brief overview of outsourcing as it relates to pension arrangements and to the Local Government Pension Scheme. Outsourcing members is a complex legal process largely governed by Transfer of Undertakings (Protection of Employment) Regulations 2006, the Local Government Pension Scheme Regulations, and Government directions and guidance. Human Resources and Payroll staff involved in an outsourcing exercise should refer any questions on how to proceed to your Manager who is expected to be familiar with the relevant legislation.
The Best Value Authorities Staff Transfers (Pensions) Direction 2007 states that a ‘Best Value Authority’ is legally required to ensure that transferring employees are offered either continuing membership of the Local Government Pension Scheme or a ‘broadly comparable’ pension scheme if their employment is transferred under TUPE to another employer. A ‘Best Value Authority’ (under the Local Government Act 1999) includes Local Authorities such as District and Parish Councils), and Police, Fire and Waste Authorities. The Secretary of State can order that levying and precepting bodies under the Local Government Finance Acts) are also Best Value Authorities.
Other Public Sector employers (e.g. organisations funded by the State) which are not Best Value Authorities, should follow the guidance in the Cabinet Office’s ‘Staff Transfers in the Public Sector’ document which states that TUPE terms ought to apply (even if they don’t have to legally), that there should be ‘appropriate terms’ to protect occupational pensions, and that ministers expect Public Sector employers to adopt the policy set out in HM Treasury’s ‘A Fair Deal for Staff Pensions’ (i.e. offering continuing membership of the Local Government Pension Scheme or transferring to a ‘broadly comparable’ scheme).
The outsourcing Scheme Employer should ensure that the organisation to which staff are being transferred either becomes a Transferee Admission Body of the Shropshire County Pension Fund, in which case that organisation would become the new Scheme Employer of the transferred staff. Or offer the staff membership of a pension scheme which is ‘broadly comparable’ to or better than the Local Government Pension Scheme.
As outlined in HM Treasury’s ‘A Fair Deal for Staff Pensions’ a Best Value Authority or other Public Sector employer must consider pensions right at the start of an outsourcing exercise. Pensions are a fundamental part of the reward package an employer gives to its staff, so if a Scheme Employer does not include pension arrangements in a tender document then a potential service provider, to which staff will transfer under TUPE, will not be able to submit a realistic bid to provide the service.
How does a Scheme Employer find out the cost of providing Scheme benefits for a group of employees?
Shropshire County Pension Fund’s Scheme Actuary will work out the costs involved. They will set out the new Employer Contribution Rate and overall liabilities for providing pensions for the staff (so the Scheme Employer can decide if it requires a bond in the event of the premature termination of the contract e.g. if the outsourcing company goes into liquidation). The assessment of this cost is likely to cost the Scheme Employer several thousand pounds.
How does an organisation to which staff will transfer join the Local Government Pension Scheme?
The organisation must apply to become a Transferee Admission Body of the Shropshire County Pension Fund. This will involve the Scheme Employer, the organisation and the Shropshire County Pension Fund jointly signing an ‘Admission Agreement’ drawn up by lawyers. This process will take several weeks. The organisation must also put an indemnity bond in place if required by the Scheme Employer, to cover the level of risk arising on premature termination of the contract.
Once staff have been transferred, can an outsourcing Scheme Employer have any continuing liability towards the Scheme?
Yes, at the end of the contract the original Scheme Employer will have to pay any outstanding liabilities owed to the Shropshire County Pension Fund if the contract is terminated prematurely, e.g. the organisation to which the staff transfer goes into liquidation, the original Scheme Employer will have to pay any outstanding liabilities owed to the Shropshire County Pension Fund which are not covered by a bond or paid by the Transferee Admission Body.