Fair Deal pension guidance

Following on from the commitment made in the Spending Review 2010 and the recommendations of Lord Hutton in the interim report from the Independent Public Service Pensions Commissions (IPSPC), the government has today announced a consultation on the future of the Fair Deal pension policy.

Fair Deal is a non-statutory policy introduced in 1999 and further clarified in 2004, applying to pension provision for public sector staff when they are compulsorily transferred to a non-public sector employer*.  It requires that the non-public sector employer:

• provides protection for the transferring employees future pension rights by either, where available, allowing them continued membership of their existing public sector pension scheme or, where continued membership of their existing public sector pension scheme is not available, membership of a pension scheme which has been certified by the Government Actuary’s Department as offering benefits which are broadly comparable to those of their existing public sector pension scheme; and
• provides protection for the transferring employees accrued pension rights where they are not able to remain members of their existing public sector pension scheme and are instead offered membership of a broadly comparable pension scheme, by offering them the opportunity to transfer their accrued rights by means of a more favourable agreed bulk transfer arrangement.

The risks and costs around these requirements and where they should fall on such compulsory transfers are some of the most important issues discussed between potential contractors and public sector organisations during procurements.  The protections of these rights are also one of the most important issues for the employees who are compulsorily transferred.  However, the IPSPC commented in their interim report that “current pension structures, combined with the requirement to provide comparable pensions (Fair Deal), are a barrier to non-public service providers, potentially making it more difficult to achieve efficiencies and innovation in public service delivery”. 

The consultation launched today is set against the following four objectives for future policy as outlined by the government:

• delivering value for money for the taxpayer;
• providing an appropriate level of protection to public sector employees;
• removing barriers to the plurality of public service provision; and
• allocating costs and risks of pension provision appropriately.

The consultation is wide ranging and sets out eight questions on which the government is looking for responses.  Public, private and third sector organisations, trades union and other representative bodies are likely to take a keen interest in participating in the consultation (particularly following other recent changes in the area of public sector outsourcing, such as the removal of the Code of Practice on Workforce Matters in Public Sector Service Contracts in December 2010 and the current economic climate where such pensions requirements can have a significant impact on the costs of service delivery).  How these four objectives for future policy can be given equal weight in any future policy will be a difficult balancing act for the government.

You should also consider the possible impact that any changes to the policy may have as part of any planned or ongoing procurements given that responses are requested by 15 June 2011 and no doubt given the importance of the issues an announcement on the future policy will follow shortly after the consultation closes.

We will look at the consultation in more detail in a future edition of Employment Eye, but in the meantime if you would like to see further details on the consultation and/or participate please follow this link.

* Staff transfers from central government: a fair deal for staff pensions, Guidance to Departments and Agencies, HM Treasury, 1999, and Fair Deal for staff pensions: procurement of bulk transfer agreements and related issues, HM Treasury, 2004.