Staff transfers from private to public service pension schemes
This is for contracting authorities involved in staff transfers. Its purpose is to help contracting authorities understand the steps that need to be followed.
Introduction
Staff transfers occur when former public service staff with pension protection are required to move from a private sector broadly comparable (BC) pension scheme back to the public service pension scheme (PSPS) they were in originally. These types of moves are usually due to an outsourced contract coming to an end.
This document is designed to cover situations where the pension scheme transfer is to the NHS pension arrangements or the Civil Service pension arrangements. However, it may 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 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.
Fair Deal (2013) for staff pensions policy – bulk transfer exercise requirement
“Fair Deal” is a non-statutory government policy and among its scenarios, it sets out the requirement for bulk transfer exercises. These are required for former public service staff with pension protection and usually take place when an outsourced contract comes to an end.
The former public service staff with pension protection are required to move from a private sector pension scheme back to the PSPS they were a member of before the service was outsourced.
Transferring staff need to be given an option to transfer past pension benefits earned in their BC pension scheme. These benefits also include those transferred in from their previous PSPS to their BC pension scheme.
As part of the bulk transfer, members have the option to maintain a final salary link on any final salary pension benefits that they have earned in their BC pension scheme.
As part of the bulk transfer exercise GAD will calculate the:
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service and pension credits to be offered in the PSPS to members who choose to transfer their BC pension scheme benefits to the PSPS. These are intended to be equivalent in value to the members’ BC pension scheme benefits. However, the calculations rely on assumptions, such as for example, how long members will live. So it cannot be guaranteed the member will receive the same benefits in the PSPS as they would have from their BC pension scheme.
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‘PSPS Funding Requirement’ – the amount which the PSPS would need, to provide the credits in the PSPS for members who choose to transfer their BC pension scheme benefits.
The bulk transfer amount is the amount that the BC pension scheme is prepared to pay for members who choose to transfer their BC pension scheme benefits. The BC pension scheme’s actuary will propose a basis on which the bulk transfer amount will be calculated.
In some cases, the bulk transfer amount may be less than the PSPS funding requirement, in which case there will be a funding shortfall.
As set out in Fair Deal, the contracting authority is required to pay any funding shortfall unless it has contractual protections that can be enforced, meaning someone else meets the funding shortfall.
GAD can provide an estimate of the funding shortfall for the contracting authority. However, it should be noted that:
- it can only be an estimate, and the actual funding shortfall that the contracting authority will need to pay could be significantly different
- key variables (neither of which can be predicted in advance) are usually the number of members who choose to transfer and financial conditions at the date the transfer payment is made
Government policy is that the full PSPS funding requirement – including any funding shortfall – must be received by the PSPS, irrespective of the amount of the funding shortfall.
GAD will discuss the possible provision of a funding shortfall estimate and any alternatives at the appropriate stage of the process.
Steps to be completed, timing and potential issues
Our aim is that the bulk transfer exercise should be completed within 12 months (maximum) of the date of the staff transfer.
Key to this is a good level of engagement from all the parties involved, including the contracting authority, the previous employer and the administrators and actuary to the BC pension scheme.
The table below sets out what’s 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)
| Time from date of transfer (DoT) | Steps | Action from | Potential issues |
|---|---|---|---|
| DoT - 3 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 + 2 months | Data collection | GAD to request and BC scheme administrator/actuary to provide: | Late provision of member data and/or proposed bulk transfer terms is the most common source of delay in bulk transfer exercises. |
| - member data | Contracting authority may need to become involved if data is not forthcoming. | ||
| - BC scheme benefit design | |||
| - proposed bulk transfer terms | |||
| DoT + 4 months | Formal agreement to bulk transfer terms | GAD to advise contracting authority on reasonableness of proposed bulk transfer terms, provide an estimate of any potential funding shortfall to be paid (if required) and provide undertaking for Contracting authority to sign. | The bulk transfer cannot proceed until the contracting authority has signed the undertaking committing to pay any funding shortfall. |
| Contracting authority to sign the required undertaking, committing to pay the pensions shortfall. | This is non-negotiable under government policy. | ||
| BC pension scheme actuary to formalise bulk transfer terms. | |||
| GAD to formalise PSPS funding requirement 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 issuing them. |
| There will be a 3-month option period. | |||
| DoT + 9 months | Finalise bulk transfer exercise | Administrator to confirm transferring membership. | Delays in confirming list of members who have elected to bulk transfer their benefits. |
| BC pension scheme to pay bulk transfer amount. | Delays in BC pension scheme’s actuary certifying bulk transfer amount. | ||
| GAD to confirm transfer amount and calculate PSPS funding requirement. | |||
| BC pension scheme actuary to confirm transfer amount. | |||
| Contracting authority to pay any funding shortfall. | |||
| GAD to confirm credits to be added to new PSPS records for transferring members. | |||
| New PSPS administrator to update transferring member records. |