´╗┐Public sector pension reform: the latest Ministerial Statement

The Government has reached agreement with the majority of public sector trade unions on the future shape for the public sector pension schemes.  The Government announced in a Written Ministerial Statement by Danny Alexander dated 4 July 2012 that it will bring forward the Public Service Pensions Bill in the current Parliamentary Session.  This speedbrief considers the Ministerial Statement and, in particular, its comments on the future of the Fair Deal policy.

Ministerial Statement and the Public Service Pensions Bill

The Public Service Pension Bill was originally announced in the Queen’s Speech in May 2012. The aim of the Bill is to establish a common framework for public service pensions and ensure that the schemes are sustainable with costs shared more fairly between employers, public service workers and taxpayers.  The Ministerial Statement confirms that the Government intends to bring forward this legislation during the current Parliamentary Session ending in April 2013.

Ministerial Statement and Fair Deal

Fair Deal is the HM Treasury guidance dealing with the protection of pension rights when public sector employees are outsourced to the private sector.  Broadly speaking the main elements of Fair Deal are that:

  • the contractor must provide continued access to the employees' current public service pension scheme (where possible) or offer a pension scheme which has been certified by the Government Actuary’s Department (GAD) as being broadly comparable to the current scheme from which they are transferring; and
  • where a broadly comparable scheme is offered, the transferring employees should have access to bulk transfer terms. Under these terms they can transfer their accrued public service pension scheme rights to the contractor's pension scheme on day for day (or equivalent) terms, allowing for continuation of their pension benefits.

Currently the Local Government Pension Scheme (LGPS) is the main public service pension scheme which allows transferring employee to remain as active members with their new private sector employer via an admission agreement.  However, the Ministerial Statement makes it clear that when staff are compulsorily transferred from the public service under TUPE (including on subsequent transfers) to the private sector, they will in future retain membership of their original public service pension scheme.  This policy will replace Fair Deal’s current broad comparability and bulk transfer requirements. The detail of the new proposals will be published in the Autumn.

Comments

We look forward to seeing the Government’s proposals for how participation in the public service pension schemes will operate in practice. The proposals are a fundamental change from the current Fair Deal policy, in particular in relation to central government and NHS outsourcing.

The proposals will clearly have an impact on private contractors who currently use their broadly comparable pension scheme on outsourcings.  Unless the proposals are modified, it would appear that this option will cease to be available for new outsourcing contracts. However, it seems likely that broadly comparable schemes will continue to operate where they are currently in place for existing outsourcing contracts.

If participation in the public service pension schemes is to be mandated then the terms of participation and funding risks for contractors will be key.  This is particulary because the main public service pension schemes (other than the LGPS) are unfunded arrangements. The proposed move to care average benefit structures from 2014/15 should help to mitigate funding risks.

In terms of local government, the proposals would appear to remove a contractor’s option to provide a broadly comparably scheme and instead mandate the current admission body option. The Ministerial Statement is silent on the Government’s proposals for the Best Value Authorities Staff Transfer (Pensions) Direction 2007, the statutory Direction dealing with pension protection that applies to English local authorities and other best value bodies.

There is clearly a lot of detail still to come and we await the detail of the new proposals when they are published in the Autumn.