pension issues to considering when outsourcing cory blose – employer services manager
DESCRIPTION
Background Austerity Britain Public Sector becoming more creative with service delivery Previous outsourcing contracts coming to an end The Transfer of Undertakings (Protection of Employment) regulations (TUPE)TRANSCRIPT
Pension issues to considering when outsourcing
Cory Blose – Employer Services Manager
Agenda
• Background• Timescales• Tender Document• Costs• Admission Process• Key Decisions• Ideal Process
Background
• Austerity Britain• Public Sector becoming
more creative with service delivery• Previous outsourcing contracts coming to an end• The Transfer of Undertakings (Protection of
Employment) regulations (TUPE)
Background
• Why worry about Pensions?• Best Value Authorities Staff Transfers (Pensions)
Direction 2007– LGPS or Broadly Comparable Scheme
• Fair Deal– LGPS only
• Obligations continue through all subsequent transfers
Timescales• When should you contact LGSS Pensions?
– Once commercial contract has been agreed– When preferred bidder is known– As soon as you are aware of a potential outsourcing
• Discussions about pensions early in the procurement process are essential– Prospective bidders will not be able to make an informed
bid without Pension costs– Failure to consult pensions can lead to delays and
complications• Admission Agreements must be in place before the
transfer date
Tender Document• What Pensions information should be included in the
tender document?– Requirement to secure Pension rights– Approach to Funding Liabilities– Contribution rate– Bond requirements– One off and ongoing costs
• Tender document should create a level playing field• Pension Information Memorandum
– Contribution Rate – Risk Assessment to inform Bond/Guarantor decisions
Costs (Procurement)
• Pensions Information Memorandum - Cost: £4,300.– Contribution Rate – Risk Assessment to inform Bond/Guarantor decisions
• Admission Process - Cost: £3100- £3500– dependent on number of people transferring.
• Guarantor Liability
Costs (Potential Bidder)
• Assessment of Opening position - £1,000• Employer contribution rate
– Including repayment of any deficit• Potential strain costs
– Redundancy, Ill Health etc• Bond Premium – 3-5% of Bond value• Risk Assessment/Bond Renewal - £2,300• Valuation - £550
Admission processOnce preferred bidder established:• Negotiate/Decide specific pension arrangements• Provide Membership data and details of above to
Employer Services team• Actuarial Assessment• Estimated ‘Schedule of Results’• Admission agreement signed prior to transfer date• New employer starts paying contributions
Key DecisionsDecision Relevant Party
Use LGPS or Broadly Comparable Scheme
Admission Body
Type of admission body Admission Body
Bond/Guarantor Requirements Fund/Letting AuthorityOpen or Closed Scheme Admission BodyPension assets to be transferred to the Admission Body
Letting Authority
Risk Sharing Arrangements Letting Authority/Admission Body
Type of Admission Body• Two main types of admission body:
– Employer listed in 1a of Part 3, Schedule 2• E.g. charities, not for profit organisations with a community of
interest with ceding employer, no time limit on contract – Employer listed in 1d of Part 3, Schedule 2
• E.g. traditional outsourcing with private company and time limited contract
• LGSS Pensions will give guidance but Admission Body must ultimately decide on what type of employer they are
• Other types of employer – less common
Bond/guarantor requirements• If the admission body ceases any deficit must be paid
– What happens if the admission body can’t pay?• Contractors/Traditional Outsourcing
– Letting authority pays– Recommend a bond be put in place to protect the letting
authority• For all other admission bodies
– Deficit falls on all other employers in the Fund– Fund requires a guarantor in all cases
• Provisions to be kept under periodic review
Open or closed admission?
• Will the admission agreement be ‘open’ or ‘closed’?– Open: allows new employees with the Admission Body to
join the LGPS• If employed in connection with the delivery of the service
– Closed: only allows those employees listed in the admission agreement, at time of TUPE, to remain/join the LGPS
• This decision will have an impact on contribution rates and possibly the level of bond required
Funding Liabilities• Pension assets and liabilities of staff transfer to
admission body• Decision to be made over the level of assets provided
to admission body
• Fully Funded vs Deficit Sharing– Fully Funded = Assets match liabilities– Traditional outsourcing with private contractors should be
Fully Funded
Funding Liabilities• Question over where deficit should sit for others
– May depend on relationship with admission body– Deficit sharing options will increase contributions and
place a debt on balance books of the admission body• Share of Fund = match funding level of letting
authority• Share of Deficit = prefund the deferred and
pensioner members of letting authority then match remaining funding position
Contribution Rates• Set by Scheme Actuary with consideration of:
– Transferring liabilities– Length of contract– Strength of employer covenant– Open or Closed agreement– Deficit Recovery
• Exceptional Circumstances– Pass Through Agreements– Pooling/Stabilisation
• Reviewed at triennial valuation– May be reviewed more regularly
Risk SharingActuarial assumptions
Redundancies
Excessive pay increases
Employer discretions
Inflation
Regulatory Change
Early retirement costs
Investment return
Ill health retirements
Mortality rates
Discount rates
Increasing member benefits
Letting Authority Admission Body
Actuarial assumptions Excessive pay increases
Mortality rates Redundancies
Inflation Early retirement costs
Regulatory change Employer discretions
Discount rates Increasing member benefits
Investment return Ill health retirements
Ideal process
• Contact us at earliest opportunity• Request Pension information memorandum to
inform business plan/tender doc• Include full costs in tender document (inc. bond
requirements)• Inform us once you have a preferred bidder• You start admission process (e.g. decide on asset
allocation, bond/guarantor, open/closed)
Contact detailsEmployer’s Team
Cory Blose Employer Services ManagerBeth Sargent Employer Liaison OfficerRichard Sultana Employer Liaison OfficerMark McAuliffe Pensions OfficerJessica Fowkes Pensions Officer
• Tel: 01604 364621• E-mail: [email protected] • Web: pensions.cambridgeshire.gov.uk