Staff transfers between public service pension schemes
For contracting authorities involved in staff transfers, to understand required steps when people are compulsorily transferred between public service employers.
Introduction
This document has been prepared for contracting authorities involved in staff transfers. It is to help contracting authorities understand the required steps when people are compulsorily transferred from one public service employer to another, and they are also required to move from one public service pension scheme (PSPS) to another.
This document is designed to cover situations where the pension scheme transfer is between the:
- NHS Pension arrangements
- Civil Service Pension arrangements
- Teachers’ Pension Scheme
- Local Government Pension Scheme - LGPS (in some, but not all cases)
Information in this document may also be applicable to transfers involving other schemes.
We recommend you check with the Government Actuary’s Department (GAD) before relying on this document.
The pensions aspects of staff transfers impact directly on the pension benefits of transferring staff and can involve the movement of substantial amounts of money. So, it is important that the process is understood, and correctly and efficiently implemented.
This document sets out:
- what GAD can do
- what you will need to do
- how GAD can help contracting authorities make the decisions needed
This document is not formal advice from GAD. Circumstances can vary significantly between different staff transfer exercises. Contracting authorities and any other parties should not act on the basis of this note alone without having sought advice from GAD and their legal advisers.
Cabinet Office Statement of Practice policy
The Cabinet Office Statement of Practice policy (COSoP) is a non-statutory government policy. It sets out how pensions should be dealt with when public service staff are required to transfer from one PSPS to another. This is when they are subject to compulsory transfer of employment between 2 public service employers.
Note that a transfer from the LGPS may not be subject to CoSOP principles and instead be subject to a ‘Best Value Direction’ policy. You may need legal advice to determine which policy applies to a specific staff transfer.
There are 2 main elements to the CoSoP policy which are:
Broad comparability
To meet the broad comparability requirements the:
-
rate of contributions that members need to pay in the new PSPS must be no higher than that which they would have been required to pay if they had remained in the previous PSPS (the ‘contributions test’) – based on information available at the transfer date
-
value of the benefits that members expect earn in the future in the new PSPS must be no less than the value of the benefits they would have earned if they had remained in the previous PSPS, (the ‘pensions value test’) – again based on information at the transfer date. The value of benefits is assessed after deducting the contributions that members would pay in each PSPS
The benefits payable from, and contributions required to be paid to, the PSPSs are generally set in legislation. So, it is not normally possible to change them for a group of staff who are subject to a compulsory transfer between PSPSs. Instead, members will need to be given a pay uplift to compensate them if either (or both) of the contributions test and the pensions value test are not met.
Bulk transfer
Transferring staff need to be given an option to transfer past pension benefits earned in their previous PSPS to their new PSPS. As part of the bulk transfer, members have the option to maintain a final salary link on any final salary pension benefits they have earned. They also have the option to retain the same active service revaluation on any career average scheme benefits that they have earned in the previous scheme. The bulk transfer will also need to allow for each individual’s entitlement to the ‘McCloud’ remedy.
Steps to be completed, timing and potential issues
We aim to complete the pensions-related aspects of the transfer within 12 months of the transfer date. Key to this is a good level of engagement from the parties involved: primarily from the new employer, the previous employer and the administrators and actuary to the previous pension scheme.
The table below sets out what is required from the parties involved and the:
- steps that need to be completed
- timing of these steps (to achieve the 12-month target)
- issues that can cause delays to the process (based on our experience)
Note that the process is different if one of the PSPSs involved is the LGPS. In this scenario the contracting authority may be required to pay a pensions shortfall. This is when the bulk transfer amount the previous PSPS is prepared to pay is less than the amount the new PSPS requires to provide benefits for the transferring members.
Where the transfer is between unfunded PSPSs (NHS Pension arrangements, Civil Service Pension and the Teachers’ Pension Scheme), the bulk transfer terms are largely pre-agreed. The contracting authority will not be required to pay a pensions shortfall.
| Time from date of transfer (DoT) | Steps | Action from | Potential issues |
|---|---|---|---|
| DoT - 5 months | Engagement | Contracting authority needs to engage GAD. | GAD cannot start work until Letter of Engagement is in place - delays at the outset can jeopardise the timetable. |
| GAD to provide fee estimate and Letter of Engagement for signing. | |||
| DoT - 4 months | Broad comparability assessment - data collection | Contracting authority to provide list of in-scope members. | Prompt turnaround of data request by previous PSPS administrator is essential. |
| GAD to request and previous PSPS administrator to provide member data. | Contracting authority may need to become involved if data is not forthcoming. | ||
| DoT - 2 months | Broad comparability assessment | GAD to provide draft broad comparability assessment (including pay uplifts to be provided) and undertaking for new employer to sign. | The broad comparability assessment cannot be completed unless the new employer signs the undertaking (which includes a commitment to implement the required pay uplifts). |
| New employer to sign the required undertaking - GAD will then finalise the broad comparability assessment. | |||
| New employer to implement pay uplifts. |
| Time from date of transfer (DoT) | Steps | Action from | Potential issues |
|---|---|---|---|
| DoT + 2 months | Bulk transfer exercise – data collection | GAD to request and previous PSPS administrator to provide member data. | Late provision of member data and/or LGPS transfer terms is the most common source of delay in bulk transfer exercises. |
| LGPS transfers only – GAD to request and LGPS actuary to provide LGPS transfer terms. | Contracting authority may need to become involved if data is not forthcoming. | ||
| DoT + 4 months | Bulk transfer exercise - formal agreement to bulk transfer terms | LGPS transfers only – GAD to advise contracting authority on reasonableness of LGPS transfer terms, provide an estimate of any potential pensions shortfall to be paid and provide undertaking for contracting authority to sign. | LGPS transfers only - the bulk transfer cannot proceed until the contracting authority has signed the undertaking committing to pay the pensions shortfall. |
| LGPS transfers only - Contracting authority to sign the required undertaking, committing to pay the pensions shortfall. | This is non-negotiable under government policy. | ||
| LGPS transfers only - LGPS actuary to formalise transfer terms. | |||
| GAD to formalise bulk transfer terms. | |||
| GAD to provide transferring credits to administrator for inclusion in option materials. | |||
| DoT + 5 months | Option materials | Administrator to issue option materials. | Unless the administrator has prepared option materials at an earlier stage, there can be delays in issuing them. |
| There will then be a 3-month option period. | |||
| DoT + 9 months | Finalise bulk transfer exercise | Administrator to confirm transferring membership. | |
| LGPS transfers only – LGPS actuary to confirm transfer amount. | |||
| GAD to calculate/confirm transfer amount(s). | |||
| Previous PSPS to pay bulk transfer amount. | |||
| LGPS transfers only - contracting authority to pay any pensions shortfall. | |||
| GAD to confirm credits to be added to new PSPS records for transferring members. | |||
| New PSPS administrator to update transferring member records. |