The DfE has provided welcome clarity on what approvals are needed when an academy enters into an agreement with a contractor to share the risks of participation in the Local Government Pension Scheme (LGPS).  

Where an academy outsources catering, cleaning or other non-academic services, it is required to ensure that employees eligible to participate in the LGPS can continue to do so. However, contractors are often reluctant to take on all the risks of becoming a participating employer and will only do so where those risks are shared with the academy trust. This is known as a pass-through arrangement.

Until recently, the Education Skills and Funding Agency (ESFA) took the view that any such arrangement needed to be authorised by it. This was often time-consuming and authorisation was not always forthcoming.

The DfE has now provided further guidance confirming that pass-through arrangements will be automatically authorised provided that certain criteria are met:

• the employees must have been previously employed by the academy trust or local authority in the provision of the service;
• whatever the risk allocation agreed between the academy and contractor, the academy must remain responsible for the funding liabilities of the employees in the LGPS.

Where these criteria are not met, ESFA approval will still be required - and where there are existing arrangements in place which do not meet these criteria, academies should look to agree alternative arrangements with their LGPS fund.

What this means in practice is that the involvement and cooperation of the relevant LGPS fund will be required for a pass-through arrangement to meet the criteria. This is because the default position is that it is the contractor rather than the academy who will be responsible for the funding liabilities and our view is that this can only be switched with the co-operation of the LGPS fund.

We are aware that at least some LGPS funds don't offer standard pass-through arrangements which may mean that academies in these funds still need ESFA approval.

In any event, we recommend that academies take early advice when outsourcing so that they understand the position and what the allocation of risks means for them.

For help with outsourcing or LGPS pass-through arrangements, please contact Doug Mullen or Lauren Broderick.