Employee rights to participate in an occupational pension schemes generally fall outside the scope on a TUPE transfer. However, in 1999, the "Fair Deal" policy was introduced for public to private sector TUPE transfers requiring the new employer to provide a "broadly comparable" scheme for transferring employees.
In 2013, Fair Deal was amended so that employees transferring from central government, the NHS or agencies would have to be provided with continued access to the public sector scheme as an alternative to the provision of a broadly comparable scheme.
Fair Deal does not apply to local government TUPE transfers. Instead the Best Value Pensions Direction 2007 required the new employer to either participate in the Local Government Pension Scheme (LGPS) or provide a broadly comparable scheme.
The Government is now consulting on extending Fair Deal to the LGPS. The changes would mean that the transferring employees would remain in the LGPS and the new employer would be obliged to become an admission body participating in the LGPS. The option of providing a broadly comparable scheme – even if the new employer has a suitable pension scheme already – would no longer be an option.
Admission agreements are usually supported by a bond or indemnity to protect the LGPS against the risk of employer insolvency and the use of these will continue. Also, amendments to the LGPS Regulations will confirm that an admission agreement can be backdated (at present the willingness of a local authority to backdate an admission agreement varies).
At present, if there is a deficit on an employer ceasing to participate, then there is a requirement for the employer to fund any deficit. The LGPS Regulations will also be amended to allow for a return of any surplus on ceasing to participate. We presume that any surplus return will be subject to 35% tax deduction – as is currently the case under the Finance Act 2004 – although the consultation does not address this point expressly.
However, on re-tenders, where employees have already left the LGPS for a broadly comparable scheme, there is no requirement for them to be re-admitted to the LGPS. The consultation suggests that the new employer could seek admitted body status in the LGPS, but would not be obliged to do so.
The ability to repay a surplus on an employer ceasing to be an admitted body will no doubt be welcomed by contractors. However, it could have the consequence that local authorities will no longer agree to a cap on contractor contributions to the LGPS.
The treatment of employees on re-tenders is also inconsistent with Fair Deal 2013 and, if not changed following the consultation, could mean there is a still a need for broadly comparable scheme in the future.
The Consultation document is available here.