What does HMRC’s new fair deal mean for pension schemes?

What happened?

HM Review and Customs issued new guidance on a new fair deal for public sector contractors on 4 October. “The key feature of the new guidance is that it does away with the requirement on contractors to provide a scheme which is “broadly comparable” to the public service pension scheme,” says DLA Piper partner Tamara Calvert. “Instead, contractors will be able to participate in the relevant public service pension scheme itself”. The rationale behind this guidance was to encourage more private sector organisations to bid for public sector contracts.

Who will be covered?

The guidance will apply to transfers from central government departments and agencies, the NHS, schools (including academies) and other parts of the public sector under the control of Ministers. “New Fair Deal is non-statutory guidance but we expect that it will continue to be widely observed in procurement exercises,” says Calvert.

What does it mean?

Public sector pension schemes will need to be adapted to incorporate the New Fair Deal. From contractors’ perspective, there will normally be a Participation Agreement setting out the terms of the contractor’s arrangement with the scheme. “There will also be scope to agree cost-sharing arrangements between contractor and Authority,” says Calvert, “but probably outside the terms of the Participation Agreement”.

When will it be implemented?

The guidance applies immediately, and will need to be taken into account in any new procurement exercise. “On-going procurement exercises might need to be revisited, unless they are at such a late stage that it would be inappropriate to revisit them now,” says Calvert, but all relevant schemes will need to have taken the guidance on board by April 2015.

“There will be an inevitable transitional period while the public service schemes are amended, and the administrative procedures developed, but Fair Deal follows a path already well-trodden in local authority outsourcing and should settle down quite quickly,” Calvert remarks.