In November 2012 the Government published the consultation response to the “Fair Deal” guidance which was issued in March 2011. Its initial indications in July 2012 were that the current Fair Deal approach would be retained but this would be delivered by offering access to public service schemes for all transferring staff. In the most recent response the Government outlines the consultation responses received, launches a further consultation on second generation transfers and provides draft guidance on how the new Fair Deal policy will work in practice.
The current “Fair Deal for Staff Pensions” non-statutory policy applies to public sector staff pensions and requires that staff compulsorily transferred to an external provider are provided with a broadly comparable pension scheme. It also provides that the accrued pension rights of these employees are protected meaning that previous employers must put in place bulk transfer arrangements for staff transferring their public sector pension benefits into any broadly comparable pensions scheme set out by the external provider.
The guidance issued as part of the consultation response is in a draft form and the final version will be issued in advance of the new Fair Deal policy. The policy is to be reformed to ensure that staff who are compulsorily transferred out of the public sector will continue to have access to their public sector pension scheme (rather than a broadly comparable scheme). The guidance also sets out the terms under which staff already transferred to independent providers after 1999 (under the previous Fair Deal) will be allowed renewed access to their public service pension schemes when contracts are retendered. Whilst the old Fair Deal policy has maintained the level of pension provision for those employees compulsorily transferred out of the public sector, given the current and future public service pension structures, providing a broadly comparable defined benefit scheme can be significantly more expensive and have greater risk for independent providers.
When the new Fair Deal is implemented, all staff whose employment is compulsorily transferred to independent providers under TUPE will be able to retain membership of their current employer’s pension arrangements. This replaces the requirement for broadly comparable schemes and bulk transfers to be offered – this means that staff will no longer have to decide whether to transfer accrued pension benefits or leave them in deferment.
Under the new policy, transferees will be required to make employer contributions to the public service pension schemes of which the TUPE transferred staff are members and the contribution rate will reflect the rate of the public service employers whose staff are members of the scheme. This may vary throughout the duration of the contract. Access to these schemes will cease for transferred staff in circumstances where an employee ceases working on the public service contract or they choose to move to a different role with different terms and conditions. Accrued pension rights would then be deferred in the same way as if they had left the public sector.
The new Fair Deal will also apply to staff that have already been transferred out under the previous Fair Deal when the contracts are re-tendered. Employers will have the option of providing staff, already covered by the Fair Deal policy, access to a public service scheme or to continue to provide a broadly comparable scheme. It should be noted that an employer cannot offer a public service scheme to one employee and a broadly comparable scheme to another, employers will need to adopt the same approach for all staff. When a contract is tendered providers bidding for the contract will need to state whether they intend to meet the Fair Deal obligations by offering a broadly comparable scheme or whether they will allow staff to return to the public service pension scheme. This will only apply to contracts to which the Fair Deal applied and that have been retendered and only in relation to staff that did not turn down their Fair Deal entitlement and are currently a member of a broadly comparable scheme to the one they left.
When staff move back into the public service schemes, their accrued pension rights will be protected via a bulk transfer arrangement. Such an agreement should allow staff to secure credit for their past service in the service pension scheme on a day for day basis.
The 2004 Fair Deal guidance provided that all contracts covering employees protected by the Fair Deal should include clear provisions about how pensions should be handled at the end of the contract. All contracts should therefore include an enforceable obligation on the independent providers to allow for an onward bulk transfer agreement on no less favourable terms that the initial bulk transfer into the providers comparable scheme. Where there was a shortfall between the value provided at the time of the bulk transfer agreement and the onward bulk transfer value, the contracting authority had to meet the cost. This feature will remain in the new Fair Deal in relation to employees returning to public service schemes.
The guidance also provides transitional protections for those public sector workers that are given access to a public service scheme but who have less than 10 years to their Normal Pension Age on 1 April 2012.
Further information in relation to the consultation responses and draft guidance can be found HERE.