LGPS in School Procurement: How to Avoid Pension Pitfalls When Tendering Outsourced Services

Schools outsource services all the time — catering, cleaning, IT support — and most procurement teams are confident navigating TUPE, pricing, and mobilisation. But there is one area that repeatedly causes delays, disputes, and bidder anxiety: pensions, and specifically the Local Government Pension Scheme (LGPS).

There are lots of elements to the LGPS pension matters and the earlier you surface it in your ITT and contract structure, the more likely you are to attract meaningful and clear bids with fewer last-minute risk issues. The overriding government policy and legislation is:

• Best Value Authorities Staff Transfers (Pensions) Direction 2007,

• HM Treasury’s Fair Deal for Staff Pensions (last updated 2013)

The practical effect is that where staff are LGPS members (or eligible to be), the school must ensure they continue to receive the same or broadly comparable pension benefits after transfer. Today, this means that the Contractor will need to apply to become an admitted employer in the relevant LGPS in respect of the current Contract (the other, broadly comparable scheme, option is becoming obsolete and the government is considering removing this option all together).

What Contractors Must Do: What They Are Signing Up For

Contractors taking on transferring staff with LGPS protections must be prepared to:

• apply for admission to the relevant LGPS fund,

• pay employer contributions,

• handle pension data and administration accurately,

• and make “employer decisions” in areas like:

o early retirement,

o redundancy,

o and ill-health retirement (often the trickiest).

The Issues That Cause the Most Delay

• admission agreement application and fees

• requirement to resource and pay for a Bond (or obtain a guarantee from the tendering School)

• employer contribution rates to the LGPS (historic deficits, and rate increases at future LGPS valuations)

• costs of funding a LGPS redundancy pension where any staff are made redundant during the Contract

• costs of funding ill-health pensions if and when these might arise

• funding LGPS exit deficits (at the end of the Contract) and seeking a ‘pass-through’ arrangement with the LGPS.

How to ease the whole process:

• Aim to cover ALL pension points above in the ITT document.

• Identify all eligible staff and provide a summary of length of service and age (e.g. 55+)

• Speak to your LGPS beforehand, to find out what help it can offer with risk management and flag this in the ITT.

• If the School is in a position to offer some protection (e.g. a guarantee of the Contractor’s admission agreement) then include this clearly in the ITT.

• Know the Type of Contractor You’re Dealing With: Not all bidders are the same.

o A large national contractor may already have internal LGPS expertise and established processes.

o A smaller local provider may find LGPS administration and risk far more challenging

We recently ran a really informative webinar on this topic which can be found here: Practical Procurement Webinars: Previous Webinar Recordings. If you have any queries, please don’t hesitate to contact the Minerva team via the “Contact Us” page.

Disclaimer: This article is for general information only and is not legal advice. The law may have changed since the date of publication, so specific advice should be taken before relying on its contents.