The Treasury has published the long-awaited revised Fair Deal Guidance, confirming that, with immediate effect, employees who are transferred out of many forms of public service employment on outsourcing contracts will in future be able to remain members of their existing public service pension scheme. Further, where an existing outsourcing contract is re-let, eligible employees will normally be able to return to the public service pension scheme of which they were originally a member.
This is a significant development for companies and charities involved in public sector outsourcing as, at least in principle, it will remove the bulk of the DB pensions risks which they were required to take on under the previous Fair Deal guidance.
Bart Huby, partner and Head of Public Sector Outsourcing at consultants LCP, said:
“The new Fair Deal could be a significant game changer, encouraging companies and charities which had previously been deterred from tendering for public sector contracts because of the DB pensions risks, to do so in future. As such it has the potential to significantly improve the cost-effectiveness for the Government of outsourcing public services, although this does need to be balanced against the fact that the State will in future continue to be responsible for providing pensions for outsourced employees.
There are still quite a few wrinkles and complexities beneath the surface of the new guidance, for example relating to the terms on which pension liabilities can be transferred back to the public sector at the end or renewal of a contract, and the need for the contractor to enter into a formal Participation Agreement with the public service scheme. Our advice is therefore that contractors will still need to take care when dealing with pensions issues.”
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