The government has published a summary of responses to its consultation on the future of pension liabilities for former local authority staff who now work for contractors in the private sector.
Since 1999, private companies have been allowed to bid against councils for contracts such as road maintenance and waste disposal. At that time, contractors were awarded Admitted Body Status (ABS), to allow staff who found themselves now working for private employers, rather than the council, to remain in the local government pension scheme. Under ABS terms, however, the contractor can be liable for any pension deficit at the end of an employee’s contract, which is often only five years.
The government consultation, therefore, was opened in response to concerns over pension liabilities for contractors and explores the options for changing the current system, including an arrangement known as pass-through, which places the liability for contract workers’ pensions deficits with local authorities, rather than the contractors.
Some 70% of respondents to the consultation said they would consider this type of arrangement.
John Prior, head of Punter Southall’s public sector outsourcing team, said: “We believe pass-through makes sense, not just for contractors but also for local authorities, council tax payers and transferring employees. “As Local Authorities can fund over the long term, they are not currently exposed to the risk of a “snapshot valuation” occurring at a time when markets are at a relatively low level. It therefore makes sense to leave the main funding risk where it currently sits and avoid creating any additional risks.”
The informal consultation exercise set out three approaches for analysis and discussion. These include retaining the current arrangement with revised guidance on the intentions of ABS; making minor regulatory modifications to make the existing framework of ABS better. The third is to introduce broader regulatory changes that include an option for pass through arrangements.