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Despite earlier indications, the government announced in
December that it intended to retain the Fair Deal policy on public
sector pensions. Taken in isolation this is bad news for private
and third sector providers seeking to take on NHS outsourced work,
as the policy adds considerably to staff costs and puts them at a
financial disadvantage on procurement when there are competing bids
from the public sector. The potentially better news is that the
impact of this decision might be lessened by the Government
allowing transferring staff to remain within the NHS pension
scheme, although it is not yet clear at what cost to the provider
that would be.
Background
The Fair Deal is a non-statutory policy which provides greater
protection to the pension benefits of public sector staff
compulsorily transferred to a non-public sector employer, than
would otherwise be the case under the TUPE Regulations. Under the
provisions of the Fair Deal the new employer is required to provide
a "broadly comparable" pension scheme approved by the
Government Actuary's Department (GAD). (The alternative of
participation in the relevant public sector scheme is mainly
available only on local government transfers.)
The effect of this requirement is significant in two ways. First
the cost to an employer of a scheme broadly comparable with the NHS
scheme is considerably greater than the cost of a typical private
sector defined contribution scheme, and certainly greater than the
legal minimum for employees who transfer under TUPE, which is for
the employer to match employee contributions up to a maximum of 6%
of basic pay. Secondly there is a considerable difference between
what NHS Trusts pay back to the Treasury to account for the cost of
employees' pension entitlements, and the cost to an independent
sector provider of paying into a GAD certified pension scheme - a
difference which may be in the region of 20% of basic pay.
Unsurprisingly, this can mean that private sector organisations are
at a competitive disadvantage when bidding for contracts against
NHS Trusts.
Reforms
Following a recommendation by Lord Hutton to address the Fair
Deal policy in his report on the long term affordability of
public-sector pension schemes, the government commenced
consultation on the policy earlier last year. The consultation
offered three options for comment - no change, reform or ending the
Fair Deal altogether. The consultation period ended in June 2011
and it was widely expected, in the context of its wider reforms of
public sector pensions, that the Government would scrap the
policy.
However the issue became caught up in the wider debate about the
reform of public sector pensions and the Government's attempts
to come up with a package which would achieve its economic aims but
be acceptable to the unions. So in his statement to parliament on
20 December last year, the Chief Secretary to the Treasury, Danny
Alexander, announced that the Government had agreed to retain the
Fair Deal but would:
"consider what practical options might be available to
reform the terms of access to the NHS pension scheme, in particular
for NHS staff who move to a non-NHS Any Qualified Provider
delivering NHS services."
The Government hopes that this approach will mean that
organisations will no longer be deterred from bidding for public
sector contracts by the risks and costs associated with taking on
defined benefit contribution schemes. Unfortunately the
announcement does not contain any detail on how that will work or
how the pension cost and risk will be shared between the new
provider and the relevant NHS body. This may be forthcoming when
the Government issues its formal response to last year's
consultation, which is expected to be in the next few months.
In any event, the retention of the Fair Deal is conditional on
the public sector unions accepting the Government's overall
pension deal. A number of major unions, including Unite and the
NUT, have rejected the government's proposed heads of
agreement, with only UNISON and the GMB union agreeing to continue
negotiations.
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