In July 2012 the Government announced that they were going to review and reform the current Fair Deal policy. On 7 October 2013 they released their guidance, with immediate effect, along with their response to further consultation.
The Fair Deal was first introduced by Government as they felt it unfair that occupational pension schemes did not transfer under TUPE on a compulsory transfer from the public to the private sector. This would mean that public sector employees would lose their entitlement to a widely envied final salary public service pension scheme.
Whilst the Fair Deal is not legally binding, it is usually adhered to the public sector and sets out the standards that the Government expects public bodies to follow when outsourcing public services.
The old Fair Deal Policy
The old Fair Deal provided that when public sector services are contracted out, those public sector workers that transfer under TUPE must be offered a broadly comparable pension scheme by their new employer. This could be done in one of two ways: in the case of the LGPS the contractors could become admitted to the Local Government Pension scheme as ‘admitted bodies’. Alternatively they could set up a pension scheme that mirrored the benefits of the public sector scheme in which the employees participated or were entitled to participate. In that case the contractors were under an obligation to provide bulk transfer arrangements for staff to transfer the accrued benefits in their public sector pension schemes.
In relation to the other public sector schemes, many contractors are not allowed to participate in the NHS Pension scheme, Teachers Pension Scheme and the Principal Civil Service Pension Scheme so they needed to set up a broadly comparable pension scheme.
The cost implications of the old Fair Deal could be huge for some contractors as it is extremely expensive to provide a broadly comparable pension scheme.
The new Fair Deal Policy
The Government’s main aim of the reform was to provide all transferring employees continued access to their public sector pension scheme after a transfer and therefore to end the broad comparability and bulk transfer approach.
Under the new policy the contracting authority should ensure that when staff who were members (or eligible to be members) of a public service pension scheme, are transferred to an independent contractor as a result of outsourcing, they have a right to continued membership of their public service pension scheme. This means that the contracting authority must become admitted to the pension scheme and must make contributions which are equal to those made by the public sector employer.
There are exceptional circumstances where access to a public service pension scheme can be discontinued however it is not yet known what constitutes ‘exceptional circumstances.’
Where existing Fair Deal contracts are re-tendered, the Government wants employers to choose between providing a broadly comparable scheme or providing access to the public service scheme. However the guidance states they want employers to encourage employees to go back into the public service scheme.
Where employees transfer back into the public-sector pension scheme they will have accrued pension rights which will still be protected by bulk transfer arrangements.
The new Fair Deal Policy is likely to be welcomed by employers tendering for public service contracts for the first time as setting up a broadly comparable scheme can be very expensive as compared to participating in a public sector pension scheme. However, in relation to retenders, the policy still appears to be complex and potentially expensive although it does provide that in exceptional circumstances, new contracts can continue to provide pensions under the old Fair Deal guidance and allow bidders to provide a broadly comparable scheme.
Again, no definition of what constitutes exceptional circumstances is set out within the guidance and it is expected that further guidance detailing this, amongst other things, will follow.
For further advice on the new Fair Deal please contact a member of the employment team.