'Fair Deal' on pensions

On 4 October 2013, the Treasury published the revised Fair Deal Guidance, confirming the Government’s previously stated intention that, in future, employees who are transferred out of many forms of public service employment on outsourcing contracts will be able to remain members of their existing public service pension scheme. In addition, on a re-tendering of an existing contract, employees will be able to transfer back into the public-sector pension scheme to which they would have been entitled to be a member before the original transfer. Alec Bennett sets out the detail.

The background

Transfers under the Transfer of Undertakings (Protection from Employment) Regulations 2006 (TUPE), from the public to private sector are subject to a policy contained in various government-issued guidance documents collectively known as "Fair Deal".

Fair Deal is a non-statutory policy which requires the new employer to give transferred staff access to an occupational pension scheme that provides future service pension benefits which are "broadly comparable" to their previous public-sector pension schemes.

Following two consultation exercises on the future of Fair Deal, the Treasury has now published guidance setting out a reformed Fair Deal policy. Please click here to see the revised Fair Deal policy.

Fair Deal 2013

Application

The new Fair Deal guidance applies to

• central government departments and agencies
• the NHS
• maintained schools (excluding individuals employed by the local authority) and academies; and
• any other part of the public sector "under the control of Government ministers where staff are eligible to be members of a public service pension scheme".

It is important to note that the new guidance does not apply to local authority transfers, where the Best Value Authorities Staff Transfers (Pensions) Direction 2007 (which gives statutory force to some of the Fair Deal principles) will continue to apply. The Department for Communities and Local Government (DCLG) will be considering what is needed to achieve the principles of the new guidance in local government and this is expected to be the subject of future consultation.

Timing

The new guidance should be followed where possible with immediate effect; however it does contain specific provisions to allow

• contracting authorities that are already at an advanced stage of a procurement exercise to proceed on the basis of the previous Fair Deal policy where following the new guidance would not be practicable; and
• additional time, where necessary, for departments responsible for the public service pension schemes to implement changes needed to allow continued access for transferred staff.

This means that, until the relevant public service scheme is in a position to allow continued access to that scheme, the provisions of the previous Fair Deal policy continue to apply in respect of staff transfers involving that scheme. However, the revised Fair Deal policy must be followed in all cases from April 2015.

Access

Contractors will generally be required to obtain a Participation Agreement with the relevant public service pension scheme in respect of each transfer of employment, before any transfer of staff takes place.

The employer contribution rate for contractors participating in public service pension schemes will normally be set at the same level as for other employers in the scheme, although it may be that scheme regulations provide for differential rates to be charged - for example to take account of a higher risk of default associated with that employer. Scheme regulations may also include provisions to charge an exit payment if a contractor ceases to be a scheme employer.

Employees will generally be granted access to the public service schemes on the same terms as employees who remain in the public sector.

Re-tenders

The new guidance confirms that when contracts are re-tendered, staff covered by the previous Fair Deal policy should now generally be offered access to the appropriate public service pension scheme for future accrual. This will mean that staff will return to the section of the scheme that they would have been in had they remained in the public sector and not been transferred out.

When this occurs, staff will be given the option to transfer accrued rights into the public service scheme via a bulk transfer. Special arrangements apply where exceptional circumstances, such as requirements under procurement law, would prevent the application of the new Fair Deal policy.

In practice

Although the government are talking about full participation in the scheme; until the details of the new public sector schemes are finalised,

1. employers bidding for contracts at present will need to clarify
   1. which version of the Fair Deal applies to their contract; and
   2. if the new Fair Deal applies, the provisions of the Participation Agreement which they will be required to sign.
2. Employers with broadly comparable schemes need to be aware that the new guidance is likely to mean no further new members will join their scheme and may want to consider the impact of this on future funding.