A wide range of clients Housing associations 3 rd sector bodies Private companies supplying services to the public sector Colleges and government bodies Independent advice on scheme funding and exit, scheme or employer reconstruction, change management and member communication, pension impact of government outsourcing Public Sector, Charity and Not for Profit practice Private and confidential 0 Tharusha Rajapakse Trowers & Hamlins

Public sector pensions Tharusha Rajapakse Presentation ———— June 2014

Whistle-stop tour of public sector pensions ●Main public sector schemes ●Changes to public sector schemes ●Local Government Pension Scheme (LGPS) ●LGPS – admission body criteria ●Local government outsourcings ●Central government outsourcings – Fair Deal guidance ●New Fair deal guidance ●Retenders under Fair Deal

Main public sector schemes ●Local Government Pension Scheme – funded ●Principal Civil Service Pension Scheme – unfunded ●NHS Pension Scheme – unfunded ●Teachers Pension Scheme - unfunded

Changes to public sector schemes ●Hutton report ●Final salary to career average ●Transitional protection for those close to retirement age ●Participation agreements ●Actuarial valuations for unfunded schemes ●Increase to employer contribution rates ●Cost cap

Local Government Pension Scheme (LGPS) ●99 LGPS funds (89 in England and Wales) ●Administering authority administers each fund ●Governed by Superannuation Act 1972 and the Local Government Pension Scheme Regulations 2013 ●County Councils, District Councils, London borough councils and certain educational establishments have statutory right to participate under the 2013 regulations ●Other employers can participate as an “admission body” if they enter into an admission agreement and meet grounds for admission in Schedule 2 of the 2013 regulations

LGPS - admission body criteria ●Not for profit organisations providing a public service – community of interest test ●Service providers under outsourcing contracts ●Organisations providing public service with Secretary of State approval Also….. ●A body representative of “Scheme employers” or local authorities or officers of local authorities ●A body to the funds of which a “Scheme employer” contributes

Local authority outsourcings ●Best Value Authorities Staff Transfers (Pension) Direction 2007 LGPS membership or broadly comparable scheme ‘first generation’ contracts ‘second generation contracts’ enforceable by transferring employees ●New Fair Deal guidance not applicable to best value authorities

Local authority outsourcings – LGPS admission ●Pension bond provision pricing risk or parent guarantee ●Risk sharing mechanisms and LGPS admission ‘fully funded’ at point of entry ‘pass through’ of pension risk liability at ‘contract exit’

Central Government outsourcings – Fair Deal guidance ●New Fair Deal guidance – October 2013 ●Applies to transfers from central government departments (including the NHS) ●Contractor to provide transferred staff with access to public sector scheme ●Right to continued membership of the public sector scheme ●Independently hired staff not compulsorily transferred not covered by guidance ●Enforceable by staff (authority to ensure contractors comply)

New Fair Deal guidance ●Applies on subsequent compulsory transfers of transferred functions (including sub-contractors) ●Participation Agreement required for each public service contract to be agreed before transfer of staff ●Contract to provide that breach of Participation Agreement entitles authority to terminate contract ●Risk sharing mechanisms may be agreed ●Scheme employers may be required to provide a bond, indemnity or guarantee

New Fair Deal guidance ●If staff not given public sector scheme membership, old Fair Deal applies, i.e. broadly comparable arrangement ●Old Fair Deal applies until regulations in place to allow participation ●New guidance followed from April 2015 ●Advanced stage procurements Authority may adjust terms to reflect new guidance No requirement to terminate/delay procurement Where not practicable, previous policy should be followed ●Contracting authorities and private sector bodies can adopt guidance

Retenders under old Fair Deal ●Authority to consider (case by case basis) original contract and where compatible apply new guidance ●Staff to be provided with public sector scheme membership ●Broad comparability assessment of benefits at date new contract commences ●Ensure incumbent contractors treated equally Incumbent may offer broadly comparable or public service scheme Consultation with trade union required where comparable arrangement Future comparability assessment on CARE basis ●Exceptional circumstances – authority may require both incumbent and new bidder to provide comparable scheme Only where difficulty with procurement law

Bulk transfers under New Fair Deal ●Eligible staff must be offered bulk transfer of existing pension rights to new scheme when contracts are retendered ●Protection of accrued rights ●New guidance contains detailed provisions on dealing with bulk transfers when contracts are retendered

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