As we described in our November 2013 edition of Pensions Pieces, the treatment of public sector pensions is changing significantly, and the preparations for these changes continue. Here, we summarise two of the recent changes, those to the treatment by the NHS Pension Scheme of the changes to Fair Deal and the new Local Government Pension Scheme coming into effect.
Under the changes to Fair Deal, all public sector pension schemes will have to permit participation by third party employers such as sub-contractors and outsourcers. This is more radical for some schemes than others, and the NHS Pension Scheme has not tended to encourage external employers. As a result, the announcement from the Department of Health as to how it intends to deal with this change was eagerly awaited, and a document produced in March 2014 (Fair Deal for staff pensions: staff transfers from Central Government: DH guidance for the NHS Pension Scheme) gave an indication of their views, which may well be influential on other public sector schemes and their employers.
The Department of Health (DH) is keen to ensure a level playing field between internal and external employers, and between bidding external employers. This has resulted in a decision that there will be the same contribution rate for NHS and independent employers, and no debt payable on an employer leaving, although this may be reviewed in the future. The DH is also proposing not to make use of bonds or indemnities, often used in the Local Government Pension Scheme, to provide assurance for the solvency of an external employer, and expects to rely instead on clawbacks through the outsourcing contract, and interest and penalties for late payment.
In general, the changes to the pension schemes to move them from final salary to average salary arrangements will come into effect in April 2015. The one exception to this is the Local Government Pension Scheme, the enormous arrangement which has sections for a very large number of local, rather than central, government bodies. This scheme changed from the beginning of April 2014, and the Local Government Pension Scheme Regulations 2013 set out the new terms last September. This March, the Local Government Pension Scheme (Transitional Provisions, Savings and Amendment) Regulations 2014 were also laid before Parliament, which revoked the previous provisions (largely under 2008 regulations), but confirmed that benefits already accrued or transferred in would retain the old benefit structure.
Both these changes are much as expected and in accordance with both the Public Service Pensions Act 2013 and the government's announcements on Fair Deal. However, they do herald the start of a significant change in the operation of public sector pension arrangements and how they affect private employers that enter into outsourcing arrangements and their pension arrangements.