Fair deal consultation: Sackers’ Response

Background

The purpose of this document is to set out our comments on HMT’s “Consultation on the Fair Deal Policy: treatment of pensions on the compulsory transfer of staff from the public sector”.

Since 1999, the Fair Deal guidance has set out standards for protecting the occupational pensions of staff who are compulsorily transferred to private sector employers (for example, on a public sector outsourcing). If transferring staff cease active membership of their public sector pension scheme, the private contractor must provide pension arrangements which are at least “broadly comparable” to the public sector pension scheme the staff are leaving.

Transferring staff must be given the option of transferring their accrued rights in the public sector pension scheme to their new employer’s pension scheme on a day-for-day service credit basis (or the actuarial equivalent if the differences between the schemes are significant).

Alternatively, if transferring staff are members of the LGPS the private contractor can participate in the LGPS and allow transferring staff to continue as active members of the LGPS. This is known as Admitted Body Status.

In this response:

• General Comments
  
• Second and Subsequent Agreements
  
• Beckmann/Martin
  

General Comments

We note that HMT’s consultation on the Fair Deal Policy is being conducted before implementation of the Hutton report is concluded. As a result it is hard to assess the real cost implications of retaining the Fair Deal. Arguably it may be both more cost effective and with reduced risk for a private sector employer to provide “broadly comparable” pension benefits to outsourced employees if those benefits were tested against CARE than the current final salary structures.  This would then feed through to value for money for the taxpayer.

Aside from the cost implications of the Fair Deal, the perception is that the Fair Deal is difficult to operate. This has not been our experience. Whilst the procedures may be complicated, in general, many of the people who are required to implement the pensions requirements of the Fair Deal, either in relation to central government or local government, are well-versed in the requirements.

Second and Subsequent Agreements

At present, it is our understanding that most outsourcing contracts require the Fair Deal to be honoured even on second or subsequent transfers of outsourcing contracts.  This means that, without action being taken to remove this provision from existing contracts, if the Fair Deal was reformed or ended it may continue to apply for transfers between private sector employers even after it was no longer required for transfer from the public to private sector. This should be addressed in implementation to prevent unfairness.

Beckmann/Martin

In general, pension benefits do not transfer under the requirements of the Transfer of Undertakings Regulations 2006 as TUPE contains an exemption in respect of benefits under occupational pension schemes relating to “old age, invalidity and survivors”.

However, since the decisions of the European Court of Justice in Beckmann (2002) and Martin v South Bank University (2003), it is uncertain whether early retirement benefits, such as enhanced redundancy terms (which do not strictly relate to “old age, invalidity or survivors”) are excluded from the exemption. This would mean that they may transfer automatically to the new employer under TUPE.

The effect of Beckmann/Martin has always been of limited concern in the context of public sector outsourcing contracts because of the requirement to provide broadly comparable benefits post-transfer. However, if the Fair Deal is ended it is more likely that private sector employers will seek an indemnity from the transferring (public sector) employer. This is common practice where there is a private sector to private sector transfer.