New guidance on public sector pension transfers

HM Treasury has published new Fair Deal guidance on the transfer of public sector pensions.

The new approach to Fair Deal set out in the guidance, Fair Deal for staff pensions: staff transfer from central government, aims to ensure that staff compulsorily transferred out of the public sector will continue to have access to good-quality pension provision.

The Fair Deal is a non-statutory policy that sets out how pension issues are to be dealt with when staff are compulsorily transferred from the public sector to independent providers delivering public services.

Under previous Fair Deal guidance, contractors were normally required to set up their own pension scheme that offered broadly comparable staff benefits to those in the corresponding public sector scheme. Lord Hutton’s Independent Public Service Pensions Commission found that this acted as a barrier to plurality of public sector provision.

The new guidance aims to achieve better value for money for the taxpayer by reducing the costs and risks to employers associated with the provision of broadly comparable pension schemes, thereby opening public sectors to greater competition.

It applies directly to central government departments, agencies, the NHS, maintained schools (except where these are covered by other arrangements for local government) and any other parts of the public sector under the control of government ministers where staff are eligible to be members of a public sector pension scheme.

The guidance comes into effect immediately and should be reflected in procurement practice as soon as is practical.

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John Prior, head of public sector outsourcing at Punter Southall, said: “While it is clear that the new Fair Deal will simplify matters on ‘first generation’ transfers of public sector staff, there will continue to be significant pension issues to consider on retenders of existing contracts.

“In particular, incumbent contractors may face a difficult choice between participating in the public service scheme or continuing to provide a broadly comparable scheme.”