Fair Deal 2013
The government has published its updated Fair Deal policy, which is a non-statutory policy that sets out how pensions issues are to be dealt with when staff are compulsorily transferred from the public sector to independent providers delivering public services.
The previous Fair Deal policy provided that members of public sector pension schemes that are transferred out to a contractor are offered a broadly comparable scheme to their existing public service scheme by the contractor, and required that their accrued benefits be protected by means of a bulk transfer to the new scheme.
Fair Deal 2013 provides that employees transferring from central government (including central government agencies, the NHS, maintained schools (except in respect of those employed by the local authority), academies, and any other parts of the public sector under ministerial control) to a contractor for the first time will be able to remain in the public sector pension scheme of which they are currently a member. This means that for the first time new employers will be entitled to join unfunded public sector pension schemes (including the Teachers' Pension Scheme ("TPS")).
This also means that the broadly comparable scheme requirements will no longer apply on a first transfer. The new employer will be required to enter into a participation agreement with the relevant public service pension scheme and the contract between the controlling authority and the new employer should deal with the relevant pensions requirements.
Contribution rates for new employers will be on the same terms as the current public sector employer (subject to review following periodic valuations), and any deficit payments at the end of the contract or other payments or rates are to be determined by the individual public sector schemes, or agreed by the contracting authority and the new employer in the participation agreement.
Fair Deal 2013 will also apply to employees that have already been transferred under the previous Fair Deal policy to a contractor when that contract is re-let.
In this case, the new contractor (or the incumbent contractor if they win the re-let contract) will need to provide the former public sector staff access to the public sector pension scheme which they would have been in had they not been transferred out of the public sector. In exceptional circumstances, where an incumbent contractor would be at an economic disadvantage to enrol those employees into the relevant public sector scheme, they may be allowed to use the broadly comparable scheme set up by that new contractor, or to allow all bidders to offer a broadly comparable scheme. All staff will have to be offered the same scheme, which would (unless the rules of the scheme or employment contracts prevented this) reflect the current benefits of the relevant public sector pension scheme rather than the benefits under the scheme at the time the employees originally left the public sector.
Transfers from local government (and other best value authorities) continue to fall outside the Fair Deal policy, as these are subject to the Best Value Authorities Staff Transfers (Pensions) Direction 2007 (which itself broadly reflects the previous Fair Deal provisions). This means that the broadly comparable scheme route would still apply to transfers from local government, including employees of maintained schools employed by the local authority. However, the Department for Communities and Local Government will consider what is needed in respect of directions or other arrangements to achieve the principles of Fair Deal 2013 in local government, and this is expected to be the subject of future consultation.
HM Treasury is currently consulting on the application of the Fair Deal for members of TPS employed in higher and further education before finalising the regulations governing the scheme and the options for protecting members' pensions.
This article is for general guidance only. It provides useful information in a concise form. Action should not be taken without obtaining specific legal advice.