What is Fair Deal?

Fair Deal is the non-statutory policy which prescribes the level of pension provision offered to public sector staff when they are compulsorily transferred to a non-public sector employer.

Why is the Government consulting?

Yesterday's consultation on the policy comes as no great surprise. The interim report of the Independent Public Services Pension Commission led by Lord Hutton was issued in October 2010. It stated that Fair Deal, combined with the existing public service pension arrangements, creates "a barrier to the plurality of public service provision" which needs to be addressed.

However, Lord Hutton acknowledged that "it is for Government to consider carefully the best way of moving forward in a way that delivers its wider objective of encouraging a broader range of public service providers while remaining consistent with good employment practices." The issuing of the consultation paper is the Government's opening move in the review of Fair Deal.

The consultation paper notes that the Government's objectives for future policy in this area are:

  • Delivering value for money for the taxpayer, so that the highest quality public services are achieved within the available resources.
  • Providing an appropriate level of protection to public sector employees' pensions when the services they deliver are outsourced.
  • Removing barriers to plurality of public service provision.
  • Allocating the costs and risks of pension provision appropriately.

The options under consideration

The consultation sets out the Government's thoughts on future policy and the possible options for staff transferring out of the public sector as a result of outsourcing. The Government is looking at three possible options:

  • no change to Fair Deal - although the Government acknowledges preserving current pension entitlements would not tackle the current barriers to the plurality of public service provision. Increasing the access to public service pension schemes to non-public sector employees delivering public services (as an alternative to Fair Deal) wouldn't necessarily help either, as this could lead to the Government bearing additional risks on the public sector balance sheet without being able to control them.
  • reforming Fair Deal - 'reform' offers a broad range of potential options, but any revised policy will need to address:
    • the requirements for future service pension accrual; and
    • the treatment of accrued benefits.
  • ending Fair Deal - and relying on the less protective TUPE provisions in the 'normal' way. Clearly such an approach would have a significant impact on the value of pension rights for transferring employees, even though it may reduce costs for providers.

The stated options themselves are pretty much what one would expect; no change; some change; radical change. However, what is interesting is that the consultation has no obvious parameters, nothing is 'off the table'. The Government is looking for Fair Deal to undergo genuine scrutiny, and if appropriate, revision.

Re-lets of existing Fair Deal contracts

As well as considering the options for future transfers, the consultation also addresses the policy options available where previously outsourced public services are subsequently re-tendered or returned to the public sector.

When considering re-tendering, there are two potential options:

  • maintain the existing Fair Deal requirements; or
  • apply the revised Fair Deal requirements to any re-tendered contracts.

In relation to the second option, the consultation is clear that in circumstances where there are specific contractual obligations which would require the current Fair Deal requirements to continue on a re-tendering, such contractual obligations will survive any revision to Fair Deal. It will be for the relevant contracting parties to agree how to proceed in such circumstances.

Comment

This consultation is the first root and branch review of Fair Deal since its introduction in 1999. The consultation offers an opportunity for interested parties to influence the Government's policies and objectives. The outcome of the consultation will have potentially significant implications for outsourcing bodies, services providers, their respective employees and taxpayers alike. Anyone with relevant experience is being urged by the Government to respond by 15 June 2011.

With Lord Hutton's final report due to be published next week, public service pension provision remains big news.