24 Feb 2011

The end of Fair Deal for public sector pensions?

It seems the Chancellor, George Osborne, is poised to announce what may be the beginning of the end for the current protection of the pension rights of public sector workers who transfer into the private sector when public services are outsourced. Lawrence Graham Employment and Pensions partner Helga Breen comments on the proposals:
"A consultation paper is expected next month which will propose that the Treasury Guidance -"Staff Transfers From Central Government; A Fair Deal For Staff Pensions" - on what should happen to public sector pension rights when services are transferred or outsourced is scrapped. The Treasury Guidance to Central Government departments and agencies, which is not legally binding but is generally observed by private sector companies bidding for contracts with the public sector, provides that the new employer is required to offer transferring staff membership of a pension scheme which, though not identical, is "broadly comparable" to the public service pension scheme which they are leaving. In practice this means that private sector employers must incur the prohibitive cost of establishing an expensive final salary scheme which mirrors the Civil Service Pension Scheme or lose the bid to another provider.

"The "Fair Deal" Guidance effectively gold plates the rights of public sector works transferring to the private sector. Under the TUPE Regulations, employees who transfer between private sector employers are only entitled to future pension provision if their former employer offered a pension scheme and, even then, there is no obligation on the new employer to provide a comparable scheme.

"While the end of Fair Deal will be welcome news to those bidding for contracts within the public sector, service providers locked into existing contracts, particularly those with no provision for review, will be wondering what the proposals will mean for them. The implications for the pension rights of former public sector workers who transferred back to their original employer following an in-sourcing will also need to be bottomed out.

"The proposals are part of a comprehensive reform of former Labour government provisions which, while protecting the employment and pension rights of public sector workers, in practice made the cost of bidding for public sector contracts prohibitive for all but the largest service providers.

"In December 2010 the Coalition Government announced the scrapping of the Code of Practice on Workforce Matters in Public Sector Service Contracts (known as the Two-Tier Code) with immediate effect. The Code applied where Local and Central Government employees transferred to the private sector and required the service provider to employ new staff on no less favourable terms than the transferred staff and to offer them "reasonable pension arrangements". In other words, the private sector service provider was required to level up employment terms and conditions to the public sector model.

"It remains to be seen whether the proposals will also herald the end of the Cabinet Office Guidance entitled "Staff Transfers in the Public Sector" (COSoP). Like Fair Deal, COSoP has no legal effect but again is wrongly regarded by Government departments and agencies as having the force of law. Although some administrative reorganisations and transfers within the public sector are specifically excluded from the TUPE Regulations, COSoP requires Government departments and agencies to pretend that TUPE applies and to offer TUPE-like protections to transferring civil servants. COSoP is perhaps one of the most major inhibiters to the Government's public sector reform programme (after outraged public opinion) and the Cabinet Office would do well to recognise this when announcing its reforms next month."