It’s been a while since the Government significantly altered its policy on how pensions should be addressed when staff are compulsorily transferred from the public sector to independent sector providers delivering public sector services. The changes implemented in October 2013 were significant and have required organisations involved in the outsourcing of NHS services (including contracting authorities, bidders and providers) to quickly get to grips with the new requirements.
If you are involved in an NHS outsourcing, are you clear on what you need to do when it comes to new Fair Deal?
Could it be you?
If you are involved in an NHS outsourcing project which is likely to result in the transfer of staff through the application of TUPE, either from an NHS body to a new private sector contractor (a so called “first generation transfer”) or from an existing contractor to a new private sector contractor on a re-tender (a “second or subsequent generation transfer”), then you will almost certainly have to address pensions issues and in particular the application of ‘new’ Fair Deal’. It may also be relevant if you are the incumbent private sector provider wanting to bid on the re-tender and you currently employ people in connection with the service being provided who have "Fair Deal" rights, having previously transferred out of NHS employment under TUPE.
New Fair Deal in the NHS
Fair Deal is a non-statutory policy setting out how pension issues are to be dealt with when staff are compulsorily transferred from the public sector to independent sector providers delivering public services. The original policy introduced in 1999 was replaced with new policy in October 2013, meaning that independent contractors providing services to the NHS can now join the NHS Pension Scheme as scheme employers under a "Pensions Direction" in relation to staff who transfer to them under TUPE. That means that private contractors will have to offer transferring staff continued access to the NHS Pension Scheme. Staff will remain eligible for the scheme for as long as they are continuously employed for the majority of their time on the delivery of the outsourced service. Importantly, there is no longer a requirement for those contractors to set up a "broadly comparable" pension scheme – something which often acted as a deterrent to bidders under "old" Fair Deal.
Pensions is a subject which quite often gets pushed down the pecking order during the planning for an outsourcing, usually in favour of more commercial issues about service delivery and price. Yet pensions is an integral part of pricing any bid accurately. It is an issue which is not only critically important in terms of protecting the rights of transferring employees, but also one which requires careful planning and an understanding of legal and cost implications.
While the process is in theory now more straightforward than it was (largely as a result of the changes brought about by "new" Fair Deal), it still requires careful planning to make sure everything is in place in advance of the staff transferring to their new employer.
Here are a few tips to help you with that planning:
- If you are an NHS contracting authority, make sure you consider pensions and the possible application of Fair Deal during the early planning phase for any procurement. If you are dealing with a retender, make sure you understand the history of the contract and whether employees previously transferred from NHS employment under it and in particular how their pensions were dealt with at the time.
- Ensure that there is a good early flow of information about the existing pension arrangements for transferring employees as part of the procurement process. Lack of detailed information on this will make it almost impossible for the bidder to price the contract accurately – which may lead to qualified bids. Key points will include:
- Establishing whether those transferring are currently members of the NHS Pension Scheme.
- Establishing whether there are any transferring employees working for an incumbent contractor who have rights under the ‘old’ Fair Deal regime and who may be members of a broadly comparable scheme established by the incumbent on an earlier transfer. If there are, those employees will need to be given the opportunity to re-join the NHS Pension Scheme if they were previously members of it and to be given the option of taking their accrued pension rights with them (often called the “transfer option”). That can often give rise to a number of complex issues for the incumbent contractor, the contracting authority as well as the bidders for the new contract. These must be addressed early on in the procurement process as a number of people will need to be involved, including the actuaries for the relevant schemes.
- Check the pensions provisions of the proposed outsourcing contract carefully. Are they up to date and reflective of "new" Fair Deal? If they refer to the contractor setting up a pension scheme which is broadly comparable to the NHS Pension Scheme as the primary obligation, then they are out of date and this should be addressed. Out of date contracts will not reflect new Fair Deal policy requirements and current guidance issued by the Department of Health. If you are unsure, take advice.
- If you are an incumbent contractor intending to bid on the retendering and currently use a broadly comparable scheme for employees involved in the transfer, do you have a contractual obligation towards those employees to provide them with access to that scheme? If so, are you being given the option to continue using that scheme as well as accessing the NHS Pension Scheme? What are the implications for you if employees transfer from your employment and cease to be active members of your broadly comparable scheme? If you are unsure, take advice.
- If you are a contractor who is proposing to secure a Pensions Direction, are you clear on what will be expected of you and what your obligations will be? Are you comfortable that you understand the implications of being a participating employer in a public sector scheme such as the NHS Pension Scheme? If not, take advice. Also, contact the NHS Business Services Authority as soon as possible once you know you are the successful bidder in order to kick-start the application process. The application process takes time and should be factored into your project timetable.
The Department of Health and the NHS Business Services Authority have produced a number of useful guides on the subject of the application of "new" Fair Deal in the NHS. Links to those documents can be found here. And if you are wondering what a “Pensions Direction” looks like, you can find an example on those pages or by clicking here.