On 19 November 2012 HM Treasury published its response to the March 2011 consultation on the future of the Fair Deal for Staff Pensions guidance. The Fair Deal review is part of the Government’s broader review of public sector pensions.  Details of all key reform documents, including the latest Fair Deal document can be found here. HM Treasury’s response confirms that the broadly comparable approach will be withdrawn and that staff will be able to remain members of the appropriate public service pension scheme post-transfer. The response also contains a draft of the new Fair Deal guidance. Consultation on the draft guidance closes on 11 February 2013.

Fair Dealand the consultation: a quick reminder

A Fair Deal for Staff Pensions is non-statutory HM Treasury guidance which sets out in general terms how pensions are to be dealt with when public sector employees are transferred to a private sector service provider. The regime applies to both first and second generation transfers in relation to central government departments and agencies and the NHS. The position in relation to local authorities is governed by the Best Value Authorities Staff Transfers (Pensions) Direction 2007 which puts some of the Fair Deal requirements on a statutory footing.

Fair Deal requires transferred staff to be offered a broadly comparable pension scheme. Fair Deal also requires pension benefits accrued prior to the transfer to be protected by means of a bulk transfer for staff who decide to transfer their public service pension benefits to the new scheme.

In March 2011 HM Treasury issued a consultation paper on the future of Fair Deal. On 4 July 2012, HM Treasury published a Ministerial Statement by Chief Secretary Danny Alexander which confirmed that the new Fair Deal guidance would operate on the basis that all transferring staff would be able to remain in their public service pension scheme post-transfer. This meant that contractors would be able to participate in unfunded public service pension schemes for the first time.

The November 2012 document sets out the Government’s response, together with proposed next steps, to the March 2011 consultation paper.

The new Fair Deal policy

The response document confirms that the overall approach to Fair Deal will be maintained. However, this will be delivered by offering access to public service pension schemes for compulsorily transferred staff. HM Treasury comments that this approach will both protect transferred staff as well as provide better value for money for the taxpayer and simplify the Fair Deal policy.

The response document contains the first draft of the new Fair Deal policy. The new policy will apply to:

  • First generation transfers
  • Second generation transfers including transfers back into the public sector
  • Staff working for an incumbent contractor that retains a contract following a re-tender

The new policy will not apply to staff transferred out before Fair Deal came into effect in 1999.

The current Fair Deal policy will continue to apply until the new policy comes into force.

Fair Dealand local government

The new policy states that local government (and other best value authorities) continue to be outside Fair Deal. The draft guidance states that the impact of the new policy on transfers from local authorities and other best value authorities will be considered separately by the Department for Communities and Local Government and so a separate consultation should be expected for local government.

New Fair Deal: newly transferred staff

The new policy will continue to apply to the same staff covered by the current Fair Deal policy. The scheme specific mechanisms for participation in the various public service pension schemes, including the process for determining employer contribution rates, will be decided by the individual schemes, subject to HM Treasury consent. Further details will be published in the final version of the new guidance.

The draft guidance notes that access to the public service pension scheme will cease to apply to transferred employee if they stop working on the public service contract they worked on when they were transferred. Fair Deal will also cease to apply if an employee voluntarily chooses to move to a new role with different terms and conditions.

New Fair Deal: contract retenders

The draft guidance makes it clear that a bidder for a contract with staff already covered by Fair Deal will have the option to:

  • Provide the staff with access to a public service pension scheme, or
  • Continue to provide a broadly comparable pension scheme.

However, the bidder must adopt the same approach for all affected staff. Where the bidder opts for the public service pension scheme route, the staff will join the scheme that is most appropriate to their employment (which may not be the same scheme which they had originally left).

Where the bidder decides to offer their own broadly comparable scheme, this will be broadly comparable to the scheme available at that time to comparable employees in the public sector, for example, post 2015 a CARE scheme (subject to transitional protections – see more below).

New Fair Deal: members with transitional protection

Certain members of public service pension schemes are subject to transitional protection when their pension schemes are reformed in 2014/2015. The draft guidance provides that employees, including employees currently outsourced, who would be eligible for such protection will have to be provided the protection either under the broadly comparable scheme or under the relevant public service pension scheme.

New Fair Deal: bulk transfers

Where currently outsourced employees move back into a public service pension scheme, the draft guidance provides that a bulk transfer to the appropriate public service pension scheme will occur. The bulk transfer terms must ensure that each member has day for day (or equivalent) credits for all past service and will maintain a final salary link for benefits accrued in the final salary scheme. The terms will be set by the receiving public service pension scheme. Any shortfall in the transfer payment must be met by the contracting authority. This approach reflects the requirements of the current Fair Deal policy.

Comment

After more than 18 months since the original consultation was published and four months since Danny Alexander’s statement, it is useful to have the Government’s formal response on the future of Fair Deal. At the same time, the response document only partly answers the question as to how new Fair Deal is going to operate. Comprehensive final guidance will be required in order to allow for contractors to be admitted to participation in the unfunded public service pension schemes.

The reformed schemes are to be in place by 2015 (2014 for the LGPS). It is to be hoped that the detail of new Fair Deal, as well as the detail of the reformed schemes, will be sorted out as soon as possible to ensure that the new regime operates as the Government has planned.

Whilst the new policy for first generation contracts should be simpler, the position for re-tendered contracts remains complex with a choice for future service provision and bulk transfer terms to be considered.

The approach to be taken in relation to local government transfers also remains unclear.