Public sector outsourcing

Before tendering for outsourcing work or making an acquisition involving current public sector employees (or ex-public sector employees who are eligible for Fair Deal protection), it is important to understand the potential risks to your business arising from pension and redundancy rights.

Punter Southall’s extensive experience includes advising on outsourcing contracts involving the transfer of employees who are members of the Principal Civil Service Pension Scheme (PCSPS), the NHS Pension Scheme (NHS Scheme) or the Local Government Pension Scheme (LGPS). We also advise clients on ‘second generation’ transfers involving employees who are members of schemes which have been certified by the Government Actuary’s Department (GAD) as ‘broadly comparable’ to a public sector scheme.

 

 Overview

 
First generation contracts

Our specialist public sector outsourcing knowledge means we carry out due diligence quickly and efficiently, allowing employers to form a view of pension risks at an early stage when bidding for a new outsourcing contract involving the transfer of employees directly from the public sector.

We can help you to: 
  • understand the costs and risks associated with pension and redundancy liabilities;
  • decide how these should be allowed for in contract pricing;
  • negotiate protection against the risks where appropriate;
  • obtain participation status in the relevant public sector scheme;
  • manage and mitigate any residual pension risks during and at the end of the contract.

Second and subsequent generation contracts

Bidders on second generation and subsequent contracts (i.e. retenders) involving the transfer of ex-public sector employees who are eligible for Fair Deal protection will normally need to consider the same issues as apply to first generation contracts. However, there are additional issues for both the incumbent contractor (whether a bidder or not) and any new bidders to consider on retenders.

The main reason for this is that any protected ex-public sector employees are likely to be members of a ‘broadly comparable’ pension scheme that is operated by the incumbent contractor. As part of the retender, these employees will have to be given a ‘bulk transfer’ option – i.e. an option to transfer all their benefits that they have earned for past service into the new contractor’s scheme (which will normally be the relevant public sector scheme).

This may mean that incumbent contractors are required to ‘top up’ the bulk transfer value available from the broadly comparable scheme, e.g. if the scheme has a funding shortfall or if (as is not uncommon) they are contractually required to pay a certain amount. If a top up is required then this is likely to apply regardless of whether or not the incumbent successfully retains the contract. This means that incumbent contractors can be faced with significant cash costs that will not be faced by their competitors. Furthermore, this may also have an adverse impact on the company’s profit and loss account.

Even if the incumbent contractor tops up the amount on offer from the broadly comparable scheme, this may still be less than the amount required by the receiving public sector scheme. This could lead to the successful contractor, whether they are the incumbent or a new bidder, having to make a significant payment into the public sector scheme soon after the contract starts.

Therefore, in addition to the issues that apply to first generation contracts, if you are an incumbent contractor we can help you to:

  • understand all the implications of pensions at an early stage so that you can plan for a successful retender;
  • liaise and/or negotiate with your scheme trustees and the Government Actuary’s Department regarding the bulk transfer value available from your broadly comparable scheme;
  • where appropriate, influence the contracting authority so that (as required by procurement legislation) you are not unfairly disadvantaged versus other bidders as a result of the pension requirements;
  • price for any bulk transfer shortfall payment that might be required into the public sector scheme.

Alternatively, if you are a new bidder we can help you to:

  • where appropriate, influence the contracting authority so that (as required by procurement legislation) you are not unfairly disadvantaged versus the incumbent contractor as a result of the pension requirements;
  • price for any bulk transfer shortfall payment that might be required into the public sector scheme.
Local authority contracts
Although most local authority contracts are outside the scope of the Government’s Fair Deal guidance, similar requirements apply under the Best Value Direction. We can help you to understand the main pension issues that need to be considered (which are similar to those highlighted above) and also the important differences you should be aware of.

For further information or to hear about recent examples where Punter Southall has helped companies with public sector outsourcing, please contact us to speak to a member of the team.


 

 Insights and views

 
    Application of new Fair Deal to existing NHS contracts
    24 October 2014
    The recent release of a policy note by the Department of Health (DoH) means that contract service providers should give serious consideration to returning employees involved on existing contracts to the NHS Pension Scheme (NHSPS).
     


    Read more
    New ‘Fair Deal’ guidance
    23 October 2013

    The long-awaited new Fair Deal guidance has now been issued by HM Treasury. The guidance aims to ensure that staff compulsorily transferred out of the public sector will continue to have access to good quality pensions, by allowing them to remain in the relevant public service pension scheme. Whilst it appears that the position has been simplified for new contracts, there are likely to be complexities for retenders.



    Read more
    The new 'Fair Deal'
    14 October 2013

    The long-awaited new Fair Deal guidance has now been issued by HM Treasury, just in time for the seminar that Punter Southall’s specialist Public Sector Outsourcing team will be running in central London on Wednesday 23 October 2013.



    Read more
    Public sector outsourcing update February 2012
    7 February 2012
    A valuation of the LGPS in Scotland is carried out every three years, and the results of the valuation as at 31 March 2011 are now starting to emerge. This note considers the likely outcome of the valuation, and the actions that employers with Admission Bodies in one or more of the eleven individual LGPS funds in Scotland (the LGPS Funds) might wish to consider.
     
    Read more
    Public sector outsourcing update January 2012
    23 January 2012
    On 20 December, the Government announced that ‘heads of agreement’ had been established with most unions in relation to the proposed reforms of the local government, health, civil service and teachers’ pension schemes. The main details of the heads of agreement for each scheme were set out in written statements on 20 December. Of more interest to contractors involved in public sector outsourcing are the Government’s comments on the future of the ‘Fair Deal’ guidance and the subsequent note published by the Government Actuary’s Department (GAD) regarding its certification of ‘broadly comparable’ schemes.
     

    Read more
    Public sector outsourcing update August 2011
    8 August 2011
    With public sector budgets under pressure, contractors are increasingly required to consider redundancies from amongst their ex-public sector workforce. The cost of providing the associated redundancy benefits can be very significant, particularly for older employees (typically those over age 55, or in some cases 50) where they may have a right to enhanced pension benefits.
     


    Read more
    Public sector outsourcing update March 2011
    10 March 2011

    On 10 March 2011 the Independent Public Service Pensions Commission, chaired by Lord Hutton of Furness, published a Final Report following its review of public sector pensions. This Final Report, published in time for the 2011 Budget, sets out a number of recommendations to the Government for a revision of the design and governance of public sector pension schemes.

     
    Read more
    Public sector outsourcing update September 2010
    1 September 2010

    Following the Chancellor’s recent announcement that public sector pension increases will be linked to CPI and not RPI from April 2011, GAD has confirmed that, from now on, any proposed broadly comparable scheme will be tested against CPI-linked benefits.

     
    Read more
    Public sector outsourcing update May 2010
    1 May 2010

    Following consultation on the Cabinet Office’s initial proposals for reform of the Civil Service Compensation Scheme, final terms were published on 2 February 2010. This briefing note provides details of the revised benefits payable through the Civil Service Compensation Scheme.

     
    Read more
    Public sector outsourcing update February 2010
    1 February 2010

    A valuation of the LGPS is carried out every three years, with the next one due as at 31 March 2010.This note looks at the possible outcome of that valuation, and the potential impact on Admission Bodies in particular.

     
    Read more
    Visit the Industry Insights page for news and views on the latest industry developments
 

 Events

 
    Speak to us

    Speak direct to our specialists in this area
    John Prior
    Principal
    Or call us on
    020 3327 5000