Government Actuary's Department certification of "broad comparability"
Where it applies, the UK Government's "Fair Deal" policy requires that, on a transfer of employment from public to private sector, employees must be given access to a pension scheme providing benefits "broadly comparable" to those provided under the relevant public sector scheme. In certain circumstances, the new employer can meet this requirement by joining the public sector scheme. However, where benefits need to be provided through the employer's pension scheme, the Government Actuary's Department (GAD) will examine the employer's scheme to assess whether the scheme's benefits are at least as generous (overall) as those provided by the public sector scheme. If this test is satisfied, GAD will issue a certificate of broad comparability.
Benefit increases: Retail Prices Index to Consumer Prices Index switch
Public sector pension benefits are currently increased in line with the Retail Prices Index (RPI). Consequently, GAD certification requires a contractor's pension scheme to provide RPI linked benefits. However, the June 2010 Budget saw the Chancellor announce that from April 2011 public sector pensions will be increased in line with the Consumer Prices Index (CPI).
Having considered the impact of this change to CPI uprating on broad comparability assessments, GAD released a statement on 31 August 2010 confirming that, to minimise disruption to contractors and ongoing procurement exercises, existing GAD certificates will continue to be valid. Continued use of such certificates will, however, require RPI uprating. GAD has released revised actuarial assumptions amending the financial assumptions so that, in the future, GAD certification may be granted where a contractor's scheme provides for CPI linked benefits rather than RPI, as well as updated demographic assumptions.
A potential financial impact
Traditionally the rate of CPI inflation has been lower than that of RPI. Indexation at CPI may therefore reduce funding costs, and therefore bid costs, meaning that bidders with an "old" RPI GAD passport would be at a disadvantage in a future procurement process against a contractor with a new GAD passport, providing for CPI uprating.
Contractors with "old" GAD certificates may wish to apply for a new GAD certificate. However, any decision to seek fresh certification should be taken after considering the potential reduction in costs resulting from providing CPI linked benefits (as opposed to RPI) against any potential increase in costs caused by the change to the demographic assumptions being used by GAD.