for transferring employees on public sector outsourcing
Roderick Ramage, solicitor, www.law-office.co.uk
published (by distribution to professional contacts) on 31 December 2007
This article is not advice to any
person and may not be taken as a definitive statement of the law in general or
in any particular case. The author does not accept any responsibility for
anything that any person does or does not do as a result of reading it.
The Best Value
Authorities Staff Transfers (Pensions) Direction 2007
A new regime was brought into force by this direction
effective from 1 October 2007 and made under ss101
& 102 Local Government Act 2003.
When local and other authorities outsource services,
they do so normally by making a contract with a (usually) private sector
business or charity for the for the service to be provided by the latter. The contract is almost invariably a transfer
of an undertaking for the purposes of the Transfer of Undertakings (Protection of Employment) Regulations
2006, SI 2006/246 (formerly 1981) (TUPE).
A major concern to the Government and public sector unions (but not
necessarily to the private sector contractors) was that the exemption of
mainstream pension benefits from TUPE (See my previous notes in December 2006
and June 2002)
would result in the transferring employees, many of whom are in relatively low
paid work, losing one compensating valuable benefit, membership of a public
sector pension scheme, as a result of an act over which they have no control.
This was (or was intended to be) remedied by the Fair
Deal for Staff Pensions guidance first issued by the Office of the Deputy Prime
Minister in June 1999 (See http://www.hm-treasury.gov.uk/d/pensions_bta_guidance_290604.pdf
for the Guidance Note by HM Treasury, June 2004), which required contracting
authorities to impose on contractors an obligation to provide for transferring
employees pensions, which are the same as or broadly comparable with the
transferring authority’s public sector scheme.
The current (October 2013) guidance note “Fair Deal for Staff Pensions”
is now available at www.gov/government/publications/fair-deal-guidance,
which cannot be accessed directly (tried 16/08/15) but can be found by eg a Google
search for “Fair deal for staff pensions 2013”: see my website
article. For instance a care home
company or charity, taking over the management of a local authority home, could
obtain admitted body status in the Local Government Pension Scheme as an
alternative to establishing its own pension scheme. The weakness of the Fair Deal guidance is
that it is not statutory, and its application and enforcement are patchy. If a public authority has a pressing need to
outsource a particular service, the bidding contractor senses that it can drive
a hard bargain and the local trade union branch is compliant, the guidance
could be totally ignored, or a lower standard of pension offered. Sometimes the pension obligation, although
imposed on the first contracting out of a service, is overlooked on subsequent
transfers of the contract by the original contractor.
The Local Government Act 2003 gave power in sections
101 (staff transfer matters: general) and 102 (staff transfer matters:
pensions) to make provisions, such as those in the Fair Deal guidance,
statutorily enforceable in the case of best value authorities (including local,
police, fire, rescue, National Park and many other authorities: see LGA 1999,
s1), but, although draft directions had been issued under these sections in
2004 and 2005, no action was taken until a direction commonly known as the 2007 Direction,
was issued by a letter
dated 27 June 2007 from the Department for Communities and Local Government. The former link to these documents (http://www.communities.gov.uk/publications/localgovernment/authorities-staff-transfers) produces 80,447
hits on the .GOV website, but Google finds the direction in the national archive.
the effect of the
On a first contract, the
contract by a best value authority and the contractor must provide that:
contractor secures pension protection for each transferring employee (ie
transferring under TUPE); and
provision of pension protection is enforceable by the transferring employee.
On a subsequent contract,
(eg where the original contractor transfers the contract to another or
otherwise ceases to perform it), the contract between the authority and the
subsequent contractor must provide that:
subsequent contractor secures pension protection for each transferring
provision of pension protection is enforceable by any original transferring
employee (ie who had transferred under the first contract).
“Pension protection” is
secured for the transferring employee if, after the change in employer, he has,
as an employee of his new employer, rights to acquire pension benefits and
those rights are the same as or broadly comparable to or better than (in the
case of a first contact) those that he had, or had a right to acquire, as an
employee of the authority and (in the case of a subsequent contract) those that
he had, or had a right to acquire, before the latest change of employer.
1 The contacting
authority is under an obligation under s101(3) of the LGA 2003 the 2007 to
comply with this (and any other) direction.
transferring employees must be given a contractual right to the pension rights
in the direction.
although TUPE is not altered, the practical effect of the direction is that
employees transferring under TUPE bring with them their pension rights or
rights broadly similar to them.
links updated 16/08/15
click below to