The outsourcing process

We’ve provided some important information for our Local Government Pension Scheme (LGPS) employers thinking about:

• outsourcing a function to an external contractor 
• outsourcing a service to an external contractor
• tendering a contract

Employers outsourcing 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. More information is available on our protecting LGPS membership page. 

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.