Outsourcing involves an organisation (the Customer) entering an agreement under which a third party (the Supplier) takes over responsibility for providing services which are currently provided by the Customer’s workforce. In most outsourcings, some employees of the Customer will transfer to the Supplier.
The Supplier must employ transferring employees on the same terms and conditions as the Customer under the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE), SI 2006/246. However, certain pension rights will not transfer due to a pensions exception (SI 2006/246, reg 10).
Even though certain rights under occupational pension schemes do not pass to the Supplier, the Supplier has a statutory duty to put in place certain minimum pension arrangements for transferring employees who meet specified conditions (PeA 2004, ss 257–258 and SI 2005/649).
For more information, see Practice Notes: Key pension issues in a private sector outsourcing and TUPE—what pension benefits should the transferee provide?
The key pension issues that need to be considered in a private sector outsourcing are:
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