Fair Deal - Change is in the air

Updated March 2011

On 3 March 2011 the Government published a comprehensive consultation document on the future of the "Fair Deal" policy. Decisions arising from this consultation could have wide ranging implications in relation to past and future outsourcing from the public sector.

What is Fair Deal?

Since 1999 Fair Deal has provided public sector employees transferring to the private sector with a substantial (and costly) level of pension protection, including the right to accrue future pension benefits either as a member a public sector scheme or in a contractor's own scheme providing "broadly comparable" benefits.

The consultation

The consultation focuses on the future of the Fair Deal policy and invites opinions on policy for both new and existing outsourcing arrangements.

Three options have been put forward by the Government in the consultation paper:

1. No change to the Fair Deal policy

The concern raised in the paper about doing nothing is that this would not tackle the current barriers to widening of public service provision (for example, to charities and the wider private sector). The cost in providing broadly comparable pension benefits are high and if no changes are made it is argued that these barriers to service provision would remain.

2. Reforming Fair Deal

The consultation document highlights a range of options for the reform of Fair Deal. It recognises that any reform must consider both the requirements for future pension accrual and the treatment of previously accrued pension benefits. Such changes might include:

• the degree to which the type of pension scheme required to be provided is specified;
• the level of employee and employer contributions payable and the basis upon which future benefits shall accrue; and
• the arrangements which need to be in place where staff wish to transfer accrued benefits.

3. Abolishing Fair Deal

Future outsourcing agreements would simply be subject to the statutory TUPE regulations which prescribe certain minimum requirements for employer contributions (generally much more affordable than providing broadly comparable benefits to those in a public sector scheme). This approach would have a significant impact on the value of future pension benefits for transferring public sector employees but would consequently reduce costs for private sector contractors.

Re-lets of existing contracts

The consultation also briefly considers future options where public services, previously outsourced under Fair Deal, are subsequently re-tendered or returned to the public sector. It identifies two possible options to be taken on re-tendering where the current Fair Deal arrangements are in place:

• maintain the current Fair Deal requirements; or
• apply the revised Fair Deal requirements to any re-tendered contracts.

Any contractual obligations which would require the current Fair Deal requirements to continue on a re-tendering will, it seems, survive any revision to Fair Deal.

Timing

The consultation document is available on the Treasury website (see Related links) and will remain open until 15 June 2011. All interested parties are invited to comment on how the future of Fair Deal should be shaped.

Comment

The launch of this consultation does not come as a great surprise in the light of the recent abolition of the "Two-Tier Workforce Code". However, the abolition of Fair Deal would have a greater impact and would certainly have a considerable impact on the benefits payable to many current and former public sector employees. It would, however, greatly reduce the risk and financial burden on private sector contractors and service providers in respect of future outsourcings. In any event, it is clear that the consultation will engender debate on the future of the Fair Deal policy, with robust views expected to be submitted by outsourcing bodies, service providers, trade unions and employees alike.

For more information please contact Sasha Butterworth.

This publication is intended for general guidance and represents our understanding of the relevant law and practice as at March 2011. Specific advice should be sought for specific cases; we cannot be held responsible for any action (or decision not to take action) made in reliance upon the content of this publication.

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