Fair Deal is changing. Public authorities will be required to ensure that outsourcing contractors offer compulsorily transferred employees access to a public sector pension scheme. The option of offering a ‘broadly comparable’ pension scheme will no longer be available, except in the case of re-let contracts.
If you have ever been a party to a public sector outsourcing arrangement, or considered entering into one, then you are likely to have come across ‘Fair Deal’. This is the Government’s guidance on “Staff Transfers From Central Government: A Fair Deal For Staff Pensions”, which was first issued in 1999, followed up by a Statement of Practice in 2000 and then expanded upon in 2004.
Fair Deal is not legally binding, but sets out the standards that the Government expects public bodies to follow when outsourcing the provision of services.
In June 2007 the Best Value Authorities Staff Transfers (Pensions) Direction 2007 was issued, making certain elements of Fair Deal binding on local authorities. It will not, however, automatically override the terms of outsourcing arrangements.
What is Fair Deal?
Fair Deal is in addition to the general requirements of TUPE. It established two principles in relation to the treatment of pensions of transferring public sector workers:
- Transferring employees should continue to have access after the transfer to a ‘good quality occupational pension scheme’ under which they can continue to earn pension for future service; and
- Transferring employees should be offered the option of either freezing the pension that they have earned up to the transfer date in the public sector scheme, or transferring the pension they have earned into the contractor’s own scheme in which future pension will be earned.
What is a good quality occupational pension scheme?
The provision of a good quality occupational pension scheme can be achieved either by the contractor becoming an employer in the public sector pension scheme (if permitted under the rules of that scheme) or by the contractor offering its own scheme providing broadly comparable benefits.
To whom does Fair Deal apply?
Fair Deal applies directly to central government departments, agencies and the NHS. The government also expects other public sector organisations to follow the Statement of Practice when outsourcing a function to the private sector.
Fair Deal does not apply directly to the contractor. If there are no contractually binding terms reflecting the requirements of Fair Deal in the outsourcing contract or elsewhere then the contractor will not be required to provide any pension provision over and above that which is required to be provided under TUPE for staff transferring from the public sector.
New Fair Deal
Following the announcement of changes to public sector pensions, the Government commissioned a review of its Fair Deal policy by the Independent Public Service Pensions Commission. In November 2012 it published in draft the new Fair Deal guidance.
Under the draft guidance, it is proposed that the overall approach to Fair Deal would be maintained, but in future access to a good quality pension scheme should be delivered by offering access to public service pension schemes for public authority staff who are transferred compulsorily. The intention is that this would replace the requirement for ‘broad comparability’ of alternative pension provision. This would be a significant step away from the current position, where most contractors find it difficult, if impossible, to become an employer in a public sector pension scheme. In order to accommodate this change, the Government has stated its intention to open up public sector pension schemes to compulsorily transferred public sector staff.
What about second generation contracts under new Fair Deal?
In relation to re-let contracts, the current intention is that a new contractor would be offered the option of either putting employees back into an appropriate public sector pension scheme or putting employees into an alternative pension scheme offering broadly comparable CARE benefits.
What are the full terms of new Fair Deal?
The new draft guidance does not purport to contain all of the necessary detail, and the Government has just closed a further consultation exercise on the terms of the new policy. Matters on which decisions have yet to be taken include:
- Which public sector pension scheme should former public sector employees be admitted to on the re-let of a contract – should this be the scheme that they left when their employment was first TUPE transferred out of the public sector, the scheme that bears the closest resemblance to their current pension arrangement or the scheme that they would have been in had they been carrying out their current job description in the public sector?
- What level of contributions should private sector employers be required to make to public sector pension schemes in respect of compulsorily transferred staff?
It is not clear from the draft new guidance whether it is intended that a broadly comparable CARE scheme would be expected to constantly provide broadly comparable benefits, so that constant monitoring and scheme amendment would be required, or whether the broadly comparable CARE scheme would only need to be broadly comparable to the relevant public sector scheme at the point of the re-tendering process.
What is the current position?
For now, whilst the detail of new Fair Deal is being hammered out, the existing Fair Deal will continue to apply to public authorities, so contractors should expect to continue to see existing Fair Deal provisions in outsourcing contracts in relation to staff transferring from the public sector.This information is intended as a general discussion surrounding the topics covered and is for guidance purposes only. It does not constitute legal advice and should not be regarded as a substitute for taking legal advice. DWF is not responsible for any activity undertaken based on this information.