Fair Deal and the LGPS: Government’s October Consultation Explained

A large section of the Government’s October 2025 consultation relates to the proposed introduction of “Fair Deal” policy into the Local Government Pension Scheme (LGPS) and would mark a significant change to pension policy when outsourcing in the local government sector. We set out our initial thoughts here.

HM Treasury's updated “Fair Deal” policy from 2013 applied to central government departments and academies, and ensured that public sector staff compulsorily transferred to private sector contractors retained access to their public service pension schemes. Extending this principle to the LGPS would mean that the existing option of providing a “broadly comparable pension scheme”, as an alternative to the LGPS itself, would only be available in exceptional circumstances. 

Of more significance is the proposed method by which transferring staff would retain access to the LGPS, which would be through a “deemed employer” approach, with the proposed removal of the “admission body” option for service providers who deliver local government contracts.

Broadly Comparable Pension Schemes

At present, in the context of outsourcing, employees transferring out of local government employment pursuant to TUPE typically retain access to the LGPS by the new employer entering into an admission agreement. However, the Best Value Authorities Staff Transfers (Pensions) Direction 2007 (and the Welsh Authorities Staff Transfers (Pensions) Directions 2022) would also allow (subject to the terms of the outsourcing agreement) pension protection to be delivered by a contractor offering a broadly comparable pension scheme. 

This alternative to LGPS access can create complexity when assessing comparability and managing bulk transfers (and is typically more expensive to implement). The consultation proposes that instead, transferred staff should remain active members of the LGPS, with a broadly comparable pension scheme only being available in exceptional circumstances (it is proposed that the existing English and Welsh directions are revoked and replaced with new directions on this new basis). The consultation has sought views on which circumstances should be considered exceptional.

This shift aligns with the Government’s stated aim of consistency across public service pensions and reducing barriers to outsourcing. However, this change is unlikely to make a significant change in practice to pension treatment when outsourcing, as the typical approach for a contractor is to gain access to the LGPS (as an “admission body” by signing an admission agreement) without the employer joining or establishing a broadly comparable pension scheme.

There will, however, be circumstances where not offering a broadly comparable pension scheme may give rise to legal implications — for example, where an incumbent contractor operates an existing broadly comparable pension scheme (which might be more generous than the reformed LGPS) and employees may have, written into their employment contracts, a right to remain in the broadly comparable pension scheme. This right may continue where the incumbent is retained following a re-procurement. This may therefore be an “exceptional circumstance” which the Government should consider.

“Deemed employer”

Of perhaps more importance is the proposal to remove the concept of “admitted body status” for outsourcing contractors, and replacing this with the concept that the letting authority is the “deemed employer” and the outsourcing contractor (who is the employer of transferring staff by law) is the “relevant contractor”. 

We understand the objective of this approach is to ensure that, by operation of the LGPS regulations, transferring local government workers remain in the LGPS with no requirement for an admission agreement. Whilst this does remove the requirement for the new employer to enter into an admission agreement, it does raise several issues including:

• the Government believes the change will simplify the LGPS with fewer Scheme employers in the LGPS. However, whilst there may be fewer “Scheme employers”, it is not obvious that it would reduce the number of “relevant contractors” in the LGPS (each of whom continues to have a role within the LGPS to pay contributions and can make decisions on assumed pensionable pay and ill-health retirement). On the face of it, splitting the role of employer (between the deemed employer and the relevant contractor) is likely, if anything, to make administration more complicated;
• under the proposals, the deemed employer approach would be used for all future outsourcings by the relevant letting authority, except in exceptional circumstances. Where these proposals are implemented, it will therefore be important that there is sufficient flexibility to deal with real-world scenarios: such as (often with larger contracts) circumstances where the commercial agreement is that a contractor takes on all risk under the project; or transfers where both parties want a clean break of responsibility on pensions (which the “deemed employer” route would prevent);
• one of the concerns of Government is that admission agreements are often late, and not signed until many weeks or months after the transfer date. This is often because of a misconception that TUPE protects rights in relation to occupational pension schemes (such as the LGPS), which it does not. The “deemed employer” route, because it provides for an automatic default, might be more likely to fuel this misconception (because an admission agreement would not need to be signed). This could exacerbate existing challenges around engagement, with administering authorities perhaps being made aware of outsourcing arrangements in a timely way even less frequently.  

Next Steps

The consultation closes in December 2025, with draft regulations also being consulted on. We understand the expectation is that the changes would be implemented (if they proceed) in Q3 2026. If implemented this would be a significant change and LGPS funds would need to update their processes and potentially their administration systems to accommodate the proposals. Procurement processes would also need to be updated to take account of the proposed default approach on pension risk.