LGPS or a broadly comparable scheme

3.8  The choice lies with the Contractor. However, Authorities and employees generally prefer to retain membership of the LGPS and this can be obtained by the Contractor obtaining admission body status ("ABS"). Contractors must check with the Administering Authority for the requirements for ABS which will involve entry into an Admission Agreement. The Contractor and the employees covered by the Admission Agreement will be subject to the rules set out in the regulations as amended from time to time governing the LGPS ("LGPS Regulations").  It is usual for a new element of the fund to be set up in relation to the Contractor and for any past service underfunding liability not to be transferred.  Any past service funding deficiency would normally be retained by the Authority from whom the employees are transferring.  In its guidance, "Admitted body status provisions in the Local Government Pension Scheme when services are transferred from a local authority or other scheme employer" issued in December 2009, DCLG suggests that certain risks associated with pension liabilities can be managed by agreement between the Authority and the Contractor.  For example, it suggests that employee-related risks such as increases in salary above those awarded by the Authority, early retirements, and retirements on redundancy would be borne by the Contractor while scheme-related risks such as those associated with investment would be borne by the Authority; however, any such mechanisms for managing risk should be determined during contractual negotiations.

3.9  Authorities should also assess the level of risk associated with the Contractor's business and may request an indemnity or a bond to be put in place to cover the event that the Contractor becomes insolvent. The level of any such bond or indemnity will depend on various factors including the salaries, lengths of service and ages of relevant employees.

3.10  Where the Contractor offers its own broadly comparable pension scheme instead of offering continued membership of the LGPS, employees will normally be given options for dealing with pension benefits which have accrued before the transfer. This may require a Bulk Transfer Agreement under which the Contractor will provide a day for day service credit or benefits of equal value for any member who wishes to transfer his benefits from the LGPS to the Contractor's scheme. This must be assessed and accommodated on a case by case basis.

3.11  Whatever option is chosen by the Contractor for future pension provision, discussions about pensions early in the procurement process are essential, especially in relation to funding and contribution rates.