Understanding LGPS: What Schools Need to Know When Outsourcing Services
When schools and academy trusts consider outsourcing services such as cleaning, one area that can significantly affect costs and contract arrangements, is the Local Government Pension Scheme (LGPS).
LGPS requirements are often misunderstood, yet they can have important financial and administrative implications for both schools and service providers. Understanding the basics early in the procurement process can help avoid delays, unexpected costs and compliance issues later on.
What is LGPS?
The Local Government Pension Scheme (LGPS) is one of the UK's largest public sector pension schemes. It is a defined benefit pension scheme, meaning retirement benefits are based on a member's earnings and length of service rather than the performance of investments.
Within schools, LGPS is typically available to support staff, including roles such as cleaners, caretakers, catering staff and administrators.
Why is LGPS Important When Outsourcing Services?
When a school outsources a service that includes employees currently participating in the LGPS, pension obligations do not simply disappear.
In many cases, employees transferring to a new service provider under TUPE arrangements will retain access to LGPS benefits. This can create additional requirements for the incoming contractor, including pension administration, legal agreements and potentially higher employer contribution costs.
As LGPS employer contribution rates are substantially higher than standard workplace pension contributions (typically around 20%), understanding whether LGPS applies at an early stage is essential for accurate contract pricing and budgeting.
What is a Passthrough Agreement?
Many schools are now familiar with the concept of a pensions passthrough arrangement.
A Passthrough Agreement is designed to ensure that actual LGPS costs remain the responsibility of the contracting authority rather than the service provider. This helps reduce the risk associated with fluctuating pension costs, particularly where employer contribution rates, actuarial assessments or other pension-related liabilities may change during the life of a contract.
Such arrangements can provide greater certainty for both schools and contractors when entering long-term service agreements.
How Does TUPE Affect LGPS?
TUPE (Transfer of Undertakings (Protection of Employment) Regulations) protects employees when services transfer between employers.
Although occupational pension rights are treated differently within TUPE legislation, public sector outsourcing arrangements often require employees who previously participated in LGPS to continue receiving broadly equivalent pension protection.
As a result, contractors may need to secure admission to the relevant Local Government Pension Scheme fund to allow transferring employees to retain their LGPS membership.
Can Employees Join an Existing LGPS Arrangement?
In many cases, the answer is no.
Each outsourced contract generally requires its own dedicated admission arrangement with the relevant Local Pension Fund. These arrangements are typically operated as "closed" schemes, meaning only employees associated with that specific transferring contract can participate.
This ensures liabilities and membership are clearly linked to the relevant service contract and employer.
What Does the LGPS Admission Process Look Like?
While requirements vary between individual Pension Funds, the process commonly includes:
- The school or academy trust notifying its Local Pension Fund of the intended outsourcing arrangement.
- The successful contractor engaging with the Pension Fund to begin admission discussions.
- Preparation and completion of an Admission Agreement involving the contractor, the school (or local authority) and the Pension Fund.
- In some cases, an actuarial assessment being undertaken to determine employer contribution rates and associated pension liabilities.
- Ongoing administration and contribution reporting once the arrangement is active.
Because pension admission processes can take time, early engagement with the Pension Fund is strongly recommended.
What Costs Might Be Involved?
The costs associated with LGPS admission vary significantly between Pension Funds and individual contracts.
Potential costs may include:
- Legal fees associated with admission documentation.
- Actuarial assessment fees.
- Employer pension contributions.
- Pension fund administration charges.
- Bond or guarantee requirements where applicable.
These costs can range from relatively modest amounts to several thousand pounds depending on the size and complexity of the arrangement.
Planning Ahead is Key
LGPS considerations should never be treated as an afterthought during procurement exercises. Early identification of pension requirements allows schools, academy trusts and service providers to budget accurately, manage risk effectively and ensure a smooth mobilisation process.
For organisations experienced in working with the education sector, understanding LGPS requirements is simply part of delivering a compliant and successful outsourcing solution. The earlier these conversations take place, the easier it is to avoid surprises further down the line.
Need Advice on LGPS and Outsourced Services?
Navigating LGPS requirements can be complex, particularly when TUPE transfers, admission agreements and pension liabilities are involved. Having clarity from the outset can help schools and academy trusts avoid unexpected costs, minimise delays and ensure a smooth transition for employees.
At Rapid, we have extensive experience supporting schools through the practical and administrative aspects of LGPS within outsourced cleaning contracts. We work closely with schools, local pension funds and stakeholders to help ensure arrangements are understood and managed effectively.
Whether you're reviewing an existing contract, planning a tender exercise, or simply want to understand the implications of LGPS for your school, our team is here to help.
