Government Consults on Extending Fair Deal 2013 to Local Authority Outsourcings

The Department for Communities and Local Government has published proposals for extending the scope of the Fair Deal 2013 guidance to include local authority outsourcings. 

Under the proposals, employees who are eligible to be an active member of the Local Government Pension Scheme (LGPS) before their employment is compulsorily transferred to another employer (that does not offer membership of a public sector pension scheme) will be entitled to be a member of the LGPS. This entitlement will last for so long as they remain wholly or mainly employed on the delivery of the service or function transferred. 

Fair Deal does not currently apply to local government TUPE transfers, but such transfers are instead governed by the Best Value Directions 2007, which will be repealed. Under the proposals, the transferee employer will be obliged to participate in the LGPS in respect of the transferring employees, rather than having to provide a scheme which is broadly comparable to the public sector scheme (LGPS), as is currently required. However, on re-tenders, where employees are already in a broadly comparable scheme, this pension protection will not extend to any subsequent transfer of employment resulting from a re-tendering of the service. The new contractor will be able to seek admission to the LGPS but will not be required to do so. 

At present, when an employer ceases to participate in a particular fund which has a deficit, it has to pay its share of the debt (exit debt). The consultation states that when an employer ceases to participate in a fund that has a surplus, then the exiting employer will be entitled to its share of the surplus, a position which until now has not been clear. This change will no doubt be welcomed by employers, but it may lead to administering authorities refusing to negotiate a cap on employer contributions which is currently common practice.

Responses to Local Government Pension Scheme Consultation: Local Government Pension Scheme Regulations are required by 20 August 2016.