New Admitted Body Status Guidance has been published on CLG’s website. A copy of the guidance can also be found here Admitted bodies guidance from the CLG. It is important that all stakeholders are aware of the guidance. All employers in the Fund responsible for procurement or outsourcing exercises should make sure they are aware of this guidance. The guidance has been updated for practitioners to give greater clarity to the Admitted Body Status provisions in the LGPS. One of the key messages in the guidance is that practitioners need to address pensions issues early in any outsourcing process. There is often initial uncertainty for employees when an outsourcing process is considered and addressing pension issues early minimises some of these uncertainties by providing reassurance that pensions are being properly managed. Delays resolving pension issues late in the day can lead to complications and added expense to the whole transfer process and should, therefore, be avoided.
Useful information for new employers
New Admission Body Information
Cost of setting up an Admission Agreement
To join the Dorset County Pension Fund as a new Admitted Body, a range of data will need to provided to us, and there are associated costs which you need to be aware of.
Below is included some information relating to the process and the costs of setting up an admission agreement. You can also find two factsheets above on this subject.
To start the process, the Pension Fund Actuary will carry out calculations in respect of the contribution rate and bond amount. There is certain information that we need to pass onto the Pension Fund Actuary. A copy of the Member Data Spreadsheet will need to be partially completed with details of the transferring LGPS members (columns/fields headed in yellow). Your payroll provider should be able to help you with this. Once completed, please return it to The Dorset County Pension fund via email to LGPSEmployers@dorsetcouncil.gov.uk
We will then add pensions data and pass it on to the Actuary.
Once the Bond and contribution rate has been set, we will then instruct our legal providers to start the process of drawing up the admission agreement and this process can take several weeks from start to finish. We would also need you to complete and return the Admission Agreement Information document to help ensure we have as much information as possible when preparing the admission agreement.
The standard admission agreement requires the admitted body to meet the Fund’s cost of setting up the admission agreement. It would then be up to the admission body to negotiate with the transferring body as to which of them bears the cost. The fees for issuing a draft agreement are £1,650 (plus VAT) plus any associated costs for provision of a bond or guarantee. Any further costs (e.g. negotiation costs) will be charged at our Legal Provider’s hourly rates.
The extent to which any legal costs are incurred after the draft agreement has been prepared will depend on whether the transferring employer and the admission body have any comments on the agreement and/or require guidance from the pension fund (including sometimes on the contractual terms agreed between them). This is usually dependant on the sophistication of the admission body’s knowledge of the LGPS and/or whether it is taking actuarial and legal advice. You will appreciate that these costs are not in the control of the pension fund. However, we would usually anticipate some additional costs for minor negotiation and for advising the transferring employer and the admission body regarding effective execution of the document. Details of our Legal Provider’s costs are:
- Preparation of first draft admission agreement (assuming we have all the correct information): £1,650 (exc. VAT)
- Preparation of first draft bond agreement (if required): £850 (exc. VAT)
- Preparation of first draft guarantee to be included in the admission agreement (if required): £850 (exc. VAT)
- Estimate of fees for reviewing and commenting on one round of reasonable comments raised by contractor or other third party e.g. a bond provider: £1,250.00 (exc. VAT) (although this very much depends on the amount and quality of the comments)
- Estimate of fees for emails and file attendances arranging execution of the deed by all parties: £450.00 (exc. VAT)
Ultimately, the extent to which additional costs are incurred usually depends on how efficiently the transferring employer and the admission body can expedite signing the agreement. In addition, the pension fund may also incur actuarial fees if the enquiries of the transferring employer or the admission body require the pension fund to seek actuarial advice.
We would normally expect to do the full calculations and the fee is £1,650 (exc. VAT) for an employer with between 5 and 250 members. A discount of 20% will apply if there are fewer than 5 members and the fee is increased by 10% for more than 250 members. There are some circumstances where the contract might start before we get the full data so an interim contribution rate along the lines of 15% might be appropriate until the calculations are completed.
If we’re close to the valuation date, there’s a bit of an argument to set a simple rate as the assumptions are due to be updated anyway and we’re comfortable with this approach but we will still need a member extract at the point of transfer at some point so that we can establish the employer’s starting assets.
BOND OR PARENT COMPANY GUARANTEE
The Pension Fund Actuary will calculate the bond amount required. The value of the bond would depend on how many employees are transferring, their ages and how much they are earning. The bond would be taken out with a financial institution similar to an insurance policy where the contractor would pay a sum to set it up and possibly an annual fee to service the bond.
Responsibility for putting a bond in place lies with the admission body. Technically, the LGPS regulations require the admission body to carry out an actuarial assessment to the satisfaction of the pension fund and the transferring scheme employer to establish whether a bond is required but in practice this will usually be done by the pension fund but if any actuarial fees are incurred these would in the first instance be met by the admission body. If a bond is required, admission bodies can source these from insurance company or corporate banking bond providers. Examples of providers in this market include HSBC, Lloyds TSB and HCC Insurance but I assume there are other providers which the admission body could source using a broker. If a bond is required there may be legal costs incurred by the pension fund if the admission body’s chosen bond provider seeks to negotiate of the pension fund’s standard bond terms. Alternatively, the pension fund can request the admission body to put in place a guarantee (e.g. from a parent company or from the transferring
employer) which would also incur additional legal costs.
COSTS OF PROVIDING THE LGPS
The employer would have to pay a contribution rate set by the Actuary, so I could not advise what this might be. A rate of 15% would generally be applied as an interim measure if the actuary had not finalised a rate. Member data would be provided to the actuary in order to establish the contribution rate.
POTENTIAL FUTURE COSTS
When employees are transferred to you, the fund will assess whether there is a deficit relating to the funding of the scheme for those employees. Employees will transfer on a ‘fully funded’ basis, which means that you are not responsible for any deficit that has arisen before you took on those employees.
However, you do take on the liabilities relating to those employees, which can change over time. You will be responsible therefore for any changes to the deficit that arise from the commencement of the contract in relation to those past service liabilities.
Please note that in the future when the last LGPS member, (or potential member as noted on the original transfer schedule) in your employ leaves, the admission agreement is terminated and a formal cessation valuation would be done to assess if the funding levels are in surplus, neutral or in deficit. So there is the potential for further costs in the future if the funding during the contract has not been adequate.
EMPLOYER COSTS FOR EARLY RETIREMENT
If as an employer you terminate the employment of one of your LGPS members who is over the age of 55 on the grounds of redundancy/efficiency/flexible retirement, there may be one-off costs charged to you to cover early payment of benefits.
We advise and support employers in their task of dealing with members in the LGPS, but you will need someone at your end who is responsible for pensions to be a point of contact. You will also need to ensure that your payroll provider can accommodate the LGPS provisions. We will provide further details of these requirements in due course.