Public Sector Newsletter

Introduction

Sackers’ Public Sector Unit has wide experience of working with organisations on the complex legal and compliance issues that face public sector schemes and broadly comparable “passport” schemes. In this newsletter we focus on the Hutton Report and the consultation on the Fair Deal.

Hutton Report

Lord Hutton’s Final Report which sets out his proposals for the reform of public service pension schemes was published on 10 March 2011. It recommends a new CARE scheme for the future and a rise in NPA. No doubt this has left many public sector workers disappointed that, ultimately, they are likely to lose their final salary schemes.

Hutton’s key recommendations

The public sector’s existing final salary schemes should be replaced with a new CARE scheme for the future.

Accrued rights in existing schemes should be protected and current members should retain their final salary link for past service.

NPA should be linked to SPA in most public service schemes, with a new NPA of 60 for the uniformed services (namely, the armed forces, police and firefighters).

The Government should set a “clear cost ceiling” for public service schemes with “automatic stablilisers” to keep future costs under more effective control.

The current legal framework for public service pensions should be simplified.

Governance and Administration

Hutton considers that the governance and administration of public service schemes needs to be improved. He advises that each scheme should have a “properly constituted, trained and competent Pension Board, with member nominees”. The Government is tasked with setting good standards of administration and with establishing the framework for achieving this.

Hutton is also keen to achieve economies of scale and encourages the streamlining of administrative functions, and more shared arrangements, where this is appropriate.

Changes to the Fair Deal?

“Fair Deal” is a policy which applies to pension provision for public sector staff when they are compulsorily transferred to a private sector employer. It requires the new employer to provide a “broadly comparable” pension scheme for the transferred staff and bulk transfer arrangements for those staff who wish to transfer their public service pension benefits. It is currently possible for a private sector employer to become a participating employer of the Local Government Pension Scheme in respect of the transferring public sector workers.

As part of the review of public sector pension provision, the Government are currently consulting on the Fair Deal. The consultation, issued on 3 March 2011, offers no solutions but sets parameters for change – the key objectives are achieving value for money for the taxpayer whilst protecting public sector workers.

In his Report, Hutton looked at the Fair Deal and, whilst he recognised that providing access to public service pension schemes “helps to remove the pensions barrier for external contractors”, concluded that there are “good reasons” for the Government to limit access. Indeed, the Report goes as far as saying that it is “in principle undesirable for future non-public service workers” to have access to public service pension schemes.

Next steps

The Chancellor, George Osborne, has accepted Lord Hutton’s recommendations on the future of public sector pensions, but insists that there should be “no cherry picking on either side”.

The recommendations will form a “basis for consulting with the unions”. Combined with the fact that the consultation on the Fair Deal does not even close until 24 June, it is likely that there will now be a period of discussions behind the scenes.

In the meantime, public sector schemes may wish to begin reviewing their governance and administration – including the possibility of establishing a Pension Board – to ensure that they are well placed to implement the reforms when finalised.