11 November 2013

Private sector participation in public sector schemes will replace broadly comparable schemes and bulk transfers, the government has confirmed.  

After two years of uncertainty, guidance published this week on the new Fair Deal provides welcome clarity for public bodies and contractors considering outsourcings.

Fair Deal is about how the pension rights of employees transferred from public to private sector must be treated.       

The new guidance replaces the existing version with immediate effect.  It follows the principles outlined in last year's ministerial statement and draft guidance.

Key points:

  • The new Fair Deal gives transferring employees a right to remain in their public sector scheme.  The plan is that they will be able to enforce this right against their new employer.  
  • Contractors will join public sector schemes through 'participation agreements'.  The guidance acknowledges contractors may seek contractual protections to limit their exposure to changes in contribution rates.  However, it will be very important to carefully consider the terms of these agreements.
  • Once new Fair Deal is operational across all public sector schemes, contractors will no longer need to set up 'broadly comparable' schemes or deal with bulk transfers of accrued rights. Meanwhile it is unclear whether they will be able to use a broadly comparable scheme as a nursery pending access to a public sector scheme.  
  • On a re-tendering, an incumbent contractor that has taken a bulk transfer may be able to remove liabilities from its broadly comparable scheme by transferring them back to the public sector scheme.
  • We await sight of the regulations that will amend scheme structures in light of the new Fair Deal to allow private sector participation in all public sector schemes.  There could be devil in the detail.

New Fair Deal applies broadly to the public sector except 'best value authorities' (like city councils). These remain under the Best Value Authorities Staff Transfers (Pensions) Direction 2007 which requires treatment similar to new Fair Deal (though some consequential changes to this Direction are anticipated).

If you would like more information, please contact Michael Hayles.

Key contact

Michael Hayles

Michael Hayles Partner

  • Pensions
  • Public Sector Pension Schemes
  • Financial Services

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