Fair deal fog leads to pricing concerns for employers

The guidance, which was published by the Treasury in October, sets out rules allowing staff that are compulsorily transferred out of the public sector to remain members of their public service pension scheme.

The guidance applies to staff in central government departments and agencies, the NHS, maintained schools, academies and any other parts of the public sector under the control of government ministers.

It comes into effect immediately but, since some changes will have to be made via amendments to scheme rules it will become mandatory from April 1 2015.

Anne-Marie Winton, partner at law firm Nabarro, said the main concern of employers has been whether they will have to make an exit payment when they no longer participate in the scheme, as a result of any liabilities, she said.

“It’s not 100 per cent clear that there wouldn’t be a deferred payment when the contractor stops doing the service,” said Winton.

Employers joining a public sector scheme will be required to sign a participation agreement.

The fair deal guidance centres on whether to admit people to a scheme, rather than the “nuts and bolts” of when an employer is in it, said Rosalind Connor, partner at law firm Taylor Wessing.

“People need to be aware that debt may be due if there’s a downturn in the market,” Connor added.

Private sector employers bidding for work now should apply for an indemnity, which would make the public sector body with which they have entered into the contract responsible for the payment of any liabilities when they leave the scheme, Winton said.

The Principal Civil Service Pension Scheme, which has been operating the new fair deal since October 2013, has outlined its policy in more detail.

For all private sector employers, contribution rates will be the same as those in the public sector and there will not be exit payments relating to past-service deficits, a spokesperson for the scheme said.

“In most cases, the public sector employer from which the staff were transferred will indemnify the scheme against a failure to pay by the private sector employer,” said the spokesperson. “Where such an arrangement is not provided, the scheme can ask for a bond from the private sector employer.”

Setting contribution rates

The big change for central government schemes is an obligation to admit all employers, regardless of their financial position, said Connor.

The guidance states employer contributions will normally be set at the same level as that paid by all other employers in the scheme.

However, different rates may be set as a result of a higher risk of default or to reflect the nature of the employer.

“That makes it more difficult, because perhaps they could be more relaxed about contributions they ask for [but] they have to let people in they’re not sure about,” said Connor.

This could lead to trustees becoming more “aggressive” when negotiating contribution rates with employers, she added.

Lesley Browning, partner at law firm Norton Rose Fulbright, said: “I would expect that public sector schemes would set out what the contribution requirements would be for any private sector employer coming into the scheme as a result of outsourcing employees.”