Pension protection rights are 'holding up outsourcing'

10 Nov 11
The government's plans to increase competition in public services can't succeed without changing the pensions protection given to transferring staff, an actuarial consultancy has warned.

By Richard Johnstone | 10 November 2011

The government's plans to increase competition in public services can't succeed without changing the pensions protection given to transferring staff, an actuarial consultancy has warned.

Public sector outsourcing specialists Lane Clark & Peacock today said the Fair Deal provision, which guarantees ‘broadly comparable’ pensions for staff transferring to the private sector, is deterring some bidders for public sector work.

LCP’s report, Public sector pensions reform, says the Fair Deal provisions can add up to 10% to staff costs for the outsourcing company, as transferred workers have ‘much higher’ benefits than the rest of the workforce. It argues this needs to be changed to allow for more private and voluntary sector companies to bid for public work.

Greater competition is a main part of the government’s Open public services white paper, with the state having to justify any monopolies.

Earlier this year, the Treasury consulted on Fair Deal changes, seeking views on whether it was a barrier to increasing the number of providers and whether it was ‘relevant to future policy’. A Treasury spokeswoman said the government would respond to the consultation in due course.

Bart Huby, head of LCP’s public sector outsourcing group, said that the current system puts some smaller outsourcing companies off bidding.

Although reforms presented ‘a significant challenge’, they would lead to ‘more opportunities for a wider range of organisations to become involved in providing public services’.  

The report says that there have been some outsourcing deals where local authority staff pensions have not been transferred, instead being retained by the council under a risk-sharing agreement. These deals should be signed ‘where possible’, it concluded.

LCP is also urging contractors bidding for public sector contracts to follow the progress of the government’s wider public sector pensions reforms. Outsourcing companies should ensure that new contract terms include ‘sufficient flexibility’ to reflect any eventual changes.

The government is proposing to raise the retirement age, increase contributions and replace final salary schemes with career-average ones, but unions are planning to strike later this month over the plans.

LCP’s report was published as two more teaching trade unions announced that their members have voted to join the Trades Union Congress’ November 30 day of action against the reforms.

Head teachers in England and Wales will strike for the first time ever after members of the National Association of Head Teachers voted yesterday to walk out.

Members of the Association of Teachers and Lecturers have also voted to take part in the action.

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