Outsourcing a Contract to a Third Party Provider – Admission Agreements

Under the Fair Deal guidance, employers who are outsourcing a service and transferring employees to the private sector should ensure that the pensions’ entitlements of those employees are protected by the Fair Deal guidance.

In broad terms, the Fair Deal guidance requires the employer to ensure that the third party contractor offers the transferring employees the chance to:

  • remain members of the LGPS by the contractor obtaining admission body status through an admission agreement; or
  • transfer to a scheme that offers ‘broadly comparable’ benefits to the LGPS.

In the vast majority of cases, the contractor obtaining admission body status is the preferred route.

It is vital that the pensions issue is an integral part of the outsourcing process. Once a decision is made to outsource a service you should contact the North Yorkshire Pension Fund (NYPF) with details of the outsourcing and the main contacts involved at least eight weeks before the staff transfer date.

Three stage process to gain admission body status

  • Establishing qualification: To qualify for consideration as an admission body, a qualifying contract for the provision of services needs to exist. Therefore, the NYPF will need to be satisfied a commercial contract has been (or soon will be) entered into between the employer and the contractor.
  • Providing information: The employer and the contractor will provide details of the transferring employees and all other relevant information to the NYPF by completing the Employer guide and checklist.  This will enable an admission agreement to be drafted. 
  • Entering the agreement: The employer and the contractor must enter into an admission agreement with North Yorkshire Council, as administering authority for the NYPF.

Information you need to provide

If you are outsourcing a service and the appointed contractor wishes to seek admission body status a checklist and staff list will need to be provided. The NYPF will send you the checklist and staff list once you have made contact.

Fees

The Fund’s actuary charges for the calculating the future service rate for the contractor. Charges are also made by the Fund’s legal advisers, for drafting and advising on each admission agreement. Further information on the charges are in the checklist.

End of the contract

At the end of the contract, when the last active member leaves the scheme, or if the contract is terminated due to a breach of the contractor’s responsibilities, the actuary will carry out an exit calculation. The exit calculation will determine if there is any funding shortfall or surplus. There will be an actuarial fee for carrying out the exit calculation, payable by the contractor. This is in addition to the fees charged at the start of the admission agreement.

If, at the end of the contract you outsource the service to another contractor, the Fair Deal protection given to your employees on the first outsourcing will still apply. If the new contractor wishes to seek admission body status, a new admission agreement will be needed.