TUPE Transfers and Outsourcing
Background and introduction
Where one or more members of staff are transferred under the TUPE (Transfer of Undertakings Protected Earnings) Regulations, guidance or statute in the form "Fair Deal" applies to all public sector organisations with regards to the protection of staff pensions. As of 1 October 2007, Fair Deal applies under statute for "Best Value Authorities" such as Wiltshire Council, Swindon Borough Council, the Wiltshire Police Authority and the Wiltshire and Swindon Fire Authority.
It is our understanding that fair deal is only guidance for non-best value authorities, but we recommend that any non-best value authorities that are considering moving one or more staff under TUPE take legal advice with respect to the pension implications before making such a change. All employers who are not best value authorities are recommended to protect transferee's pensions by ensuring that the new employer offers either a broadly comparable scheme or becomes an admitted body.
The two most common ways that such a situation will arise is the result of:
- The creation of a new company or charity from an existing employer (normally a local authority) to be responsible for delivery of some of its services.
- The outsourcing of a contact from an existing employer (normally a local authority) to an outside organisation such as a charity or private sector organisation.
Fulfilling the requirements of Fair Deal
There are two ways for a Best Value Authority to fulfil its responsibilities:
a) Admitted Body Status: The new provider agrees to become an admitted body in the LGPS as the result of the: admitted body, ceding employer and administering authority signing an admission agreement. Under the LGPS Regulations, the ceding employer is required to guarantee the pension liabilities that the admitted body will hold. Furthermore, the agreement can either be open or closed to new entrants (post transfer date) while, subject to the agreement of all parties, various possibilities are possible regarding the financing of the pension arrangements.
Broadly speaking these fall into the categories of:
i) Traditional Arrangement: Our actuary will make an assessment from the date of the transfer, so that the new employer is credited with a sufficient number of assets to match the pension liabilities that they have inherited (i.e. starting 100% funded); they are also given a starting employer contribution rate which reflects the expected level of contributions needed to pay for the future service of transferring staff. At every triennial valuation (the next being 2013), we will review the funding level of the admitted body and either increase, decrease or maintain their employer contribution rate as required. Once either the service contract comes to an end or all the LGPS members have left, we will perform a cessation valuation to determine whether a surplus or deficit exists. We will seek to recover any deficit in line with the details of our cessation policy.
In this case, most of the pension risk lies with the new admitted body.
Please note it is policy to recharge the actuarial costs involved in this exercise. Further information can be found in our employer charging policy.
ii) Pass Through Arrangement: There are a number of variations of types of pass thought arrangements in place but the two most common ones are for the admitted body to pay a fixed employer contribution for the duration of the contract or for them to only pay the future service contribution rate (i.e. the money needed to pay for future benefits). In both these cases, the ceding employer will retain responsibility for any deficit/surplus at the start of the contract, its duration and its end. Here most of the pension risk (generally symmetrical) remains with the ceding employer, although this will vary depending on exactly what is agreed in relation to the pass-through arrangements.
Both of these scenarios are covered in greater depth in the documents which can be found by following the links at the bottom of this page.
b) Broadly Comparable Scheme: The new provider gives the transferring employees access to a broadly comparable scheme as assessed by a suitably qualified actuary. This option may also include access to the LGPS as part of another county pension fund, in which case no actuarial assessment is required.
All transferring staff must be given the opportunity to transfer their previous pension into the new scheme on a day for day service basis. If 2* or more employees transfer at any one time, we are required to negotiate the amount of money transferring on a 'bulk transfer basis' with the new provider. Bulk transfer arrangements can be problematic, so we encourage all ceding employers to make contact with us at the earliest opportunity if the new provider is planning to take this option.
Note: In practice, if the Scheme being offered is not the LGPS, or nearly identical to the LGPS, it is unlikely that an actuary will certify it as a broadly comparable scheme.
*This figure is 10 if the transfer is to another LGPS Fund.
What do you need to do?
It is essential that the Wiltshire Pension Fund is informed at the earliest possible opportunity of any potential transfers of staff (TUPE or otherwise), well before any commercial agreement affecting employee transfers is made between the scheme employer and the provider. This is important because the terms of the pension arrangements need to be factored into the tendering and procurement processes. This avoids substantial problems and commercial disputes arising. It also protects the interests of the staff concerned.
We also recommend that you read the appropriate 'in greater depth' guidance below.
Further information and guidance
- Admitted Body Status as a result of TUPE - in greater depth [available shortly]
- Broadly Comparable Scheme provision - in greater depth [available shortly]
- Guidance from the CLG surrounding admitted body status provisions
Contacting Us:
Andy Cunningham - Telephone: 01225 713612 - E-mail: andrew.cunningham@wiltshire.gov.uk
Wiltshire Pension Fund, Wiltshire Council - Bythesea Road,Trowbridge, Wiltshire, BA14 8JN.
© 2009 Wiltshire Pension Fund.