Public sector outsourcing: pensions

Our team can lend their experience and expertise in an area of pensions where one size definitely does not fit all.

Pensions are expensive. If you take on staff as part of an outsourcing arrangement, from either the private or public sector, you may be responsible for some or all of employees’ historic pension promises. As a result, unexpected costs from these benefits could exceed any other margins in the contract price. It is therefore vital to make sufficient allowance for them in a contract tender to avoid exposing your business to substantial financial risks. We can help forecast and manage these costs by providing advice on:

• pension risks involved in an outsourcing contract
• allowances to include in contracts for pensions costs
• negotiation of bulk transfer terms
• analysis and modelling of future pensions costs

Even if you are only providing defined contribution pensions (which don’t usually create significant risks for the employer), there may be potential complications around redundancy costs (for example Beckmann costs for staff transferred under Transfer of Undertakings [Protection of Employment] - TUPE).

LGPS

Outsourcing arrangements in connection with the LGPS are shaped to a large extent by the fund actuary. However, there can be significant value in taking separate actuarial advice. In particular, Barnett Waddingham’s commercial focus can help to improve the financial outcomes for contractors in many circumstances.

Some specific areas of advice that we provide to contractors in relation to the LGPS Admitted Body framework include:

• understanding the implications of admission agreements
• negotiating terms to sit alongside admission agreements
• negotiating termination deficits at the point of exit
• advice in relation to potential redundancy or early retirement costs
• help in obtaining and maintaining GAD passports, or alternatively certifying broadly comparable schemes directly.

New Fair Deal guidance

Below are three bite-sized talks about the New Fair Deal guidance, which protects public sector employees’ pensions rights when their employment transfers to a new company.

This new guidance is intended to make it much easier for companies to outsource work from the public sector, reducing the financial impact of providing public sector-like pensions to employees who transfer.

This is really good news for all parties involved in outsourcing, but there are a number of things to watch out for when bidding for these contracts.