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Revision to Fair Deal policy for public sector staff transferred under TUPE part 2
Thursday, December 12, 2013

Ongoing contracts

If you already operate a broadly comparable scheme in relation to a contract with some time left to run, you should look now at what you might be liable for at the end of the contract, and consider your options. It may be advantageous to transfer back into the public service scheme now rather than at the end of the contract.
This will reduce the number of deferred and pensioner members to be left in your scheme at the end of the contract and will also reduce the funding risks over the rest of the contract term. The potential downside is that any current deficit would be crystallised, rather than facing an uncertain future (which could be either a surplus or deficit). The preferred option will depend on your attitude to risk and the size of the contract relative to the organisation as a whole.

Contracts up for re-tender

The incumbent contractor needs to understand the obligations it faces under the terms of the existing contract to pay a particular level of transfer value at the end of the contract.  Even if they win the contract again, it is likely they will have to transfer staff (and their past benefits) back to the public service scheme.
The transfer terms out of an existing broadly comparable scheme will be set by the incumbent contractor in line with the provisions of the existing contract, if applicable. The terms for securing the necessary service credits within the public service scheme will be set by the actuary to that scheme. If bidders (including the incumbent contractor) feel that there is likely to be a shortfall between the two transfer amounts, they must request a pricing adjustment within their contact bid supported by a “Reasoned Statement of Need”. In the event that a shortfall does arise in respect of members choosing to transfer their past service, the contracting authority will be required to meet the shortfall. The important point for new bidders is not to inadvertently agree to meet the costs of any shortfall in the previous contractor’s scheme.

The new guidance does allow for broadly comparable schemes to continue to be used for re-tendered contracts, where this is deemed to be the only viable course of action by the contracting authority. The guidance also allows employees to be offered compensation in lieu of continued membership of their public service scheme or membership of a broadly comparable scheme if neither option is deemed appropriate. In practice, we would expect these exceptions to be invoked in a very small proportion of cases. Where the specific details of staff contracts of employment are problematic (for example requiring benefits broadly comparable to those at the time they left the public service scheme, whereas these schemes will shortly be converting to a Career Average Revalued Earnings basis) then the awarding authority is required to ensure that reasonable steps are taken to amend contracts, or other action taken, to enable the new guidance to be followed.

Closing down schemes

Existing broadly comparable schemes will see members transferring out at the end of each contract and no new members coming in, so their employers will eventually need to think about whether (and how) to start decommissioning these schemes. For example, whether there are enough members remaining in the scheme for it to be viable, or whether it is time to consider buying out the remaining benefits with an insurance company. Understandably, there is no suggestion of being able to transfer deferred and pensioner members back into their public service scheme.

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