[ARCHIVED CONTENT] ADDRESSEES AS OVERLEAF

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With the Minister’s agreement, I enclose, for your comments, draft regulations which make several amendments to the Local Government Pension Scheme Regulations 1997 ("the principal regulations") which will apply to LGPS employers in England and Wales. Your comments are invited no later than 6 June 2003.

2. Regulation 5 (as amended) provides access to the LGPS for private sector contractors involved in the outsourcing of contracts and functions as part of the delivery of the Best Value agenda. Since coming into force in January 2000 its effectiveness and operation have been monitored, and its usefulness discussed with the stakeholder group of local authority employers, representatives of contractors and the trades unions.

3. Several informal consultations have now taken place on possible ways of amending and improving the provisions. At the same time ODPM has completed a Best Value Review, which, in the context of the concerns over potential two-tier workforces, looked closely at pensions related issued. The outcome of the review was announced on 13 February 2003. Local authorities may also be aware that by that time the ODPM had also made clear its intentions to progress this issue by inserting clauses in the Local Government Bill proceeding through parliament. These, in effect, through the subsequent issue of directions and guidance, will require local authorities, as part of any contracting out exercise, to ensure that TUPE applies and, furthermore, future accrual of pensions rights must be secured for transferees, either in a broadly comparable pension scheme or by ongoing access to the LGPS by means of an admission agreement. This will be giving statutory effect to the statement and guidance issued by the Cabinet Office, Statement of Practice on Staff Transfers in the Public Sector, and the annex on pensions produced jointly by HM Treasury and the Government Actuary’s Department, A Fair Deal for Staff Pensions.

4. The amendments provide simplification of the process, improved levels of clarity, and measures to ensure a balanced application of the indemnity provisions which apply in business transfer contracts. These flow directly from the points raised in the earlier informal consultation letters. In these we were seeking ways to deal with issues relating to possible increased levels of outsourcing, so as to maintain the current ratios of active to pensioner members of the Scheme. The responses were positive to the extent that the changes we had made in 1999 were welcomed. Respondents sought further simplification, to remove ambiguity and unnecessary legal wrangles over the terms of the regulations, so that the provisions could be easily understood and complied with.

5. To simplify the structure of the regulations, those parts which affect non-local government employers, principally contractors, have been separated into separate provisions. A new regulation (5A) deals with "historic" admission agreements or those bodies set up other than for gain receiving public monies and carrying out public services. Regulation 5B now deals with those bodies providing services for or in partnership with a local authority. The aim is to provide a clearer statement of policy intent.

6. In the light of observations made during earlier consultations, and comments made to ODPM by parties involved in contracting exercises, we are also proposing changes to the provisions relating to indemnities (see new reg 5A(5)). The intention is to place the onus on the employer involved in a procurement and contracting out exercise. It will require such employers to establish and quantify any pension risk relating to any outsourcing in the process leading up to agreeing to an admission agreement. To meet its statutory requirement it will have to have due regard to actuarial professional advice. Actuarial advice is a requirement of the regulation, other professional advice is also recommended where this might add to the process. Consultees may wish to consider whether other professional advice should be a requirement as well.

7. The intention behind retaining the requirement for indemnities is to ensure that local council-tax payers should not have to underpin a contractor’s pension liabilities in the event of his commercial failure during the currency of an admission agreement. Comments are sought also on whether or not it would be beneficial to require annual valuation exercises and/or revisions of the degree and quantum of risk, by means of a further amendment to Schedule 2A of the principle regulations. Consultees may wish to take this opportunity to comment additionally on the interplay of these proposals and the primary legislation currently subject to parliamentary scrutiny with the directions and guidance which will subsequently be issued.

8. Later this year, once final amendments are in place, ODPM intends updating The Local Government Pension Scheme (Amendment etc) Regulations 1999 Guidance Note issued in February 2000. We will also issue explanatory material for the benefit of pensions administrators, procurement officers, HR and finance staff along the lines of the working summary draft attached as an annex to this letter.

9. This does not replace the wealth of other related material that has appeared, or will appear, but is intended to provide a step by step executive summary of the various stages. Cross references, which ultimately may be simpler to provide in an electronic format, will take users into the more detailed material available on the specific points and steps involved in the process.

10. The intention is to cover a range of distinct but none the less interconnected pension issues:-

11. Consultees may wish to familiarise themselves with the detailed guidance produced by the LGPC which complements regulation 5, and is available on their website at www.lg-employers.gov.uk . They should also insure they have received a copy of the recently issued ODPM Circular 03/2003, which deals with workforce issues, among other items, and contains at Annex D a copy of the Code of Practice on Workforce Matters. This document is available on the ODPM website (address as above)

12. Responses to this letter, the draft SI and draft guidance material, and any initial queries should be directed to Paul Kirk, Local Government Pensions Division, ODPM, Zone 2/E8, Ashdown House, 123 Victoria Street, London, SW1E 6DE (tel: 020 7944 6017). Electronic responses can be sent to the e-mail address given above.

13. The Department may wish to publish responses to this consultation in due course, or deposit them in the libraries of the Houses of Parliament or the Department’s library, unless we are asked specifically to treat a response as confidential. Confidential responses will be included in any published statistical summary of comments received and views expressed.

The flow chart which follows on the next pages, is intended to provide an illustration of the stepped process involved in developing a Best Value Plan, including the required business case, and moving through the relevant procurement phases before finalising negotiations and entering into an admission agreement or resolving issues relating to a broadly comparable pension arrangement. It draws on material available in other formats, but it is felt that this type of flow chart is more user friendly than detailed text alone. This is very much a working draft and ODPM would appreciate any thoughts on how it could be amended or developed.