Fair Deal under review

HM Treasury has launched a consultation on the Fair Deal policy which deals with the treatment of employees' pensions when they are compulsorily transferred from the public sector to a private sector employer. Although the policy is a non-statutory policy, it is followed by many public sector employers.

What is Fair Deal about?

Fair Deal requires:

  • The new employer to provide a "broadly comparable pension" for the transferred staff – in effect, this means that a DB scheme has to be provided for transferring employees following the transfer if they had access to a DB scheme before the transfer. The schemes do not have to be identical, however, so long as the employees do not suffer a "material detriment" overall; and
  • Bulk transfer arrangements for employees who wish to transfer their benefits in the public service pension scheme to the new employer's pension arrangement that provide service credits for the employees in the new scheme on a "day-for-day basis".

Options

Options floated by the consultation document include:

  • A 'do nothing' option – this is unlikely to be followed as Fair Deal is perceived to discourage smaller private and voluntary sector employers from tendering for public service contracts;
  • Removing the broad comparability requirement and reforming Fair Deal; and
  • Ending Fair Deal altogether, leaving public sector outsourcing to be governed by the Transfer of Undertakings (Protection of Employment) Regulations 2006 (SI 2006/246) ("TUPE") and the provisions in the Pensions Act 2004. TUPE and the provisions in the Act currently apply to any such outsourcing but are invariably complied with as Fair Deal places greater obligations. If Fair Deal is withdrawn, transfers in the public sector would be governed by the TUPE regulations and the Act, in the same way as transfers between private bodies.

Two tier code already withdrawn from 13 December 2010

On 13 December 2010, the government withdrew the "two-tier code". The code requires certain public sector bodies, when outsourcing services, to impose minimum contractual obligations on their suppliers for new staff employed to work alongside existing staff who were transferred over from the public sector body; the minimum obligations include provisions as to pensions. The code will be replaced by a set of Principles of good employment practice instead.