In July we issued an alert on 'Fair Deal – the latest position' in which we reported the Government's intention to maintain the overall approach to 'Fair Deal'. We also noted the possibility of increased access to public service pension schemes for staff compulsorily transferred from the public sector under the Transfer of Undertakings (Protection of Employment) (TUPE) Regulations 2006.
Last month saw the Government publish the Public Service Pensions Bill. In addition to implementing the reforms to public sector pensions flowing from the March 2011 Hutton Report, the Bill contains enabling provisions that will facilitate the extension of public sector schemes to those based outside of public service.
Extending access to the public service pension schemes
Clause 1 of the Bill identifies a core description of public service employees (including civil servants, local government workers, teachers and health service workers); what we refer to here as 'Core Employees'. Clause 22 then sets out a mechanism to allow schemes applicable to those public sector employees to be extended to persons who do not come within that class of Core Employees.
In relation to public sector employees who are not technically Core Employees, the Bill allows scheme regulations to be created to provide pension and other benefits to public service employees.
Scheme regulations may also be made which deem persons to come within a particular description of persons in public service where they do not otherwise fall within that description.
Scheme regulations for a scheme that currently applies to Core Employees may specify persons who are not in public service (i.e. employees of private contractors) as being persons to whom the scheme may potentially relate. These are individuals the 'responsible authority' (the Minister for Civil Service or relevant Secretary of State) decides are appropriate to be covered by a scheme (including the Local Government Pension Scheme and the NHS Pension Scheme).
The responsible authority may then, at any time, determine that the scheme is in fact to relate to those persons who are not in public service. He must also publish a list of those persons covered and keep it up-to-date, with the intention that the list provides a comprehensive record of the non-public service membership of the relevant scheme.
Once a determination has been made by the responsible authority in relation to those persons not in public service, the scheme's provisions for the payment of pensions and benefits will apply to those persons; subject to any 'special provisions' made in the scheme regulations. This potentially gives the Treasury flexibility to impose additional requirements and safeguards to protect the affordability of the scheme.
A determination by the responsible authority may have retrospective effect. This is a useful confirmation for those contractors and public sector organisations that are currently involved in a bidding process or with a TUPE transfer date that will occur before the relevant scheme regulations are updated, allowing greater access.
The Bill contains separate provisions which enable members of the Principal Civil Service Pension Scheme (PCSPS) who are compulsorily transferred out of the Civil Service to a private sector contractor, to retain membership of the PCSPS. A new section 1A will be inserted in the Superannuation Act 1972 (the Act) allowing for an additional list to be produced of persons who qualify for access to the PCSPS.
The list can be amended at any time and must be published. Regulations will be made prescribing the other information to be included in the list, for example the names of employers, the dates from which access through this route is granted and the circumstances that must exist for access to continue.
These separate provisions are required because wider access to the PCSPS would not be possible without a change to primary legislation, whereas changes to other public sector schemes are possible by appropriate regulations. Currently access to the PCSPS is restricted to those in employment in the Civil Service, or those in an employment or office listed in Schedule 1 to the Act.
The provisions will come into force when the Bill receives Royal Assent. This is so the policy of wider access to the PCSPS can be implemented with immediate effect and staff will not miss out on the opportunity to remain in their current pension arrangements.
For staff compulsorily transferred before the provisions of the Bill take effect and so unable to stay in the PCSPS, the Bill allows these individuals to regain access to the scheme. Flexibility has been included to enable the Minister to make retrospective determinations to "deal with historic anomalies". It is not clear whether this will extend to re-admitting to membership those staff who are currently members of broadly comparable pension schemes.
This route will apply to PCSPS members who transfer before the new scheme comes into existence. Access to the new scheme will be extended where required under the determinations route set out above.
Status of the Fair Deal guidance
We are still awaiting the Government's formal response to the consultation on Fair Deal that closed over a year ago in June 2011. Danny Alexander MP, the Chief Secretary to the Treasury, indicated in July of this year that the Government intended to maintain the overall approach to Fair Deal. A Government response to the consultation is expected at the end of October, possibly slipping into November.
In the meantime, the Public Services Pension Bill puts a framework in place that enables the Fair Deal approach to be maintained by allowing wider access to public sector schemes. The Bill is scheduled to receive its second reading in the House of Commons on 22 October 2012 and we look forward to watching the progress of the Bill through Parliament.
Clearly, much more detail remains to be provided, particularly about the interaction between the provisions in the Bill and the Fair Deal policy itself. This remains a difficult period for contractors and public sector organisations currently involved in a bid process or with an upcoming transfer. Our advice remains to make sure that all parties are informed of the possible changes to Fair Deal and the extension of the public service pension schemes, and to build in flexibility within the contract so that both parties can benefit from any relaxations.