Private healthcare contractors with employees in ‘broadly comparable schemes’ need to be aware of guidance issued by the Department for Health, which relates to the new Fair Deal policy adopted in late 2013. This guidance clarifies the position on opportunities to return former NHS employees to the NHS Pension Scheme (“NHSPS”) during an ongoing contract.

The Department has confirmed that it will consider requests from contractors for a Pension Direction under new Fair Deal on a contract-by-contract basis, taking into account factors such as the impact on staff, procurement and value for money. Any such requests will need to be supported by the relevant NHS contracting authority, which is likely to need to take its own legal, financial and actuarial advice before it is able to support a request.

Future Service Pension

Only staff previously transferred out of the NHS under old Fair Deal who remain employed by the contractor will be able to return to the NHSPS for future service. The Department expects that cost savings generated by allowing the contractor to participate in the NHSPS will be passed back to the NHS contracting authority through lower contract charges.  Employer contributions to the NHSPS will be 14.3% from April 2015, which will be considerably lower than the rates most contractors will be paying to their current broadly comparable schemes.  However, any cost savings will need to take into any account any bulk transfer shortfall funding arrangements between the contractor and the contracting authority (see below).

Past Service Benefits and Bulk Transfers

If the NHS contracting authority decides to support an application then it will need to provide the Department with assurances that appropriate enquiries have been made and satisfactory responses have been provided by the contractor; in particular, that the contracting authority is satisfied as to the provider’s future covenant strength and how it will finance any contributions it may be required to make in respect of any bulk transfer, and as to the security of any accrued pension rights that remain in the broadly comparable scheme.

All staff who are re-admitted into the NHSPS should be given the option to bulk transfer their accrued rights in their current broadly comparable scheme back to the NHSPS on a day-for-day (or actuarial equivalent) service-credit basis.

This will require a negotiation between the contractor’s broadly comparable scheme’s actuary and the Government Actuary’s Department (acting for the NHSPS), to agree the bulk transfer terms. If there is a shortfall in the bulk transfer terms by GAD then this is likely to be a key aspect of the application negotiations. 

Summary

This clarification of the Department’s policy provides contractors with an opportunity to reduce their future service pension costs and to transfer accrued liabilities from their funded broadly comparable schemes to the NHSPS. Whilst the savings can be substantial, there are a number of knotty legal issues that need to be negotiated.