Developments in Public Sector Pensions

Outsourcing of Public Sector workers - consultation on new Fair Deal Guidance

The government has been consulting on updating its Fair Deal policy, taking the approach that employees that are transferred out to a contractor are to be allowed to remain in their public sector pension scheme following the transfer.

The existing Fair Deal policy, which is non-statutory guidance, provides that members of public sector pension schemes that are transferred out to a contractor are to be offered a broadly comparable scheme to their existing public service scheme by the contractor, and requires that their accrued benefits be protected by means of a bulk transfer to the new scheme.

The New Fair Deal, as detailed in the government's published consultation response, provides that employees transferring from a public sector employer to a contractor for the first time will be able to remain in their public sector pension scheme. This means that for the first time new employers will be entitled to join unfunded public sector pension schemes (e.g. the NHS Scheme, Principal Civil Service Pension Scheme and Teachers Pension Scheme).

This also means that the broadly comparable scheme requirements will no longer apply.

Contribution rates for new employers, suggested to be on the same terms as the current public sector employer (subject to review following periodic valuations) and any deficit payments at the end of the contract, are to be determined by the individual public sector schemes, though no details of such terms were given in the response.

The New Fair Deal policy will also apply to employees that have already been transferred under the existing Fair Deal policy to a contractor when that contract is re-let.

In this case, the new contractor (or the incumbent contractor if they win the re-let contract) will have the option of allowing staff access to a public sector pension scheme or a broadly comparable scheme set up by that new contractor, although all staff will have to be offered the same scheme.

The consultation response also indicates that transfers from local government (and other best value authorities) fall outside the Fair Deal policy, as these are subject to the Best Value Authorities Staff Transfers (Pensions) Direction 2007 (which itself broadly reflects the existing Fair Deal provisions). This means that the broadly comparable scheme route would still apply. However, this is subject to further review by the Department for Communities and Local Government.

The Public Service Pensions Act 2013 includes a power to make regulations to enable continued membership of public service pension schemes for former civil servants who are transferred to the private sector. It is expected that regulations allowing private sector employers to join such schemes will need to be published, but until that time the existing Fair Deal policy will remain in place.

This article is for general guidance only. It provides useful information in a concise form. Action should not be taken without obtaining specific legal advice.