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The Ministry of Housing, Communities and Local Government has finished its consultation published earlier in 2019 on changes which introduce Fair Deal where there is a compulsory transfer of staff from local government under a contract for services. Currently, Fair Deal only applies for outsourcings from central government.

What are the proposals?

The idea is that the existing regime, where employees of Best Value Authorities (which includes local authorities) are entitled to broadly comparable pension benefits would be replaced in its entirety. Under the new regime, employees of "Fair Deal Employers" would retain the right to membership of the Local Government Pension Scheme (LGPS) post transfer. The option to offer a broadly comparable scheme would no longer be possible.

Who are Fair Deal Employers?

All employers of staff who are members (or eligible to be members) of the LGPS are caught by the definition, except further or higher education corporations and admission bodies. This means most housing associations and charities will not be Fair Deal Employers, although they will have the option of requiring continued LGPS membership following an outsourcing. The transfer of staff to a subsidiary established by a local authority (for example an ALMO) would fall within the scope of the changes.

How can the new employer provide membership of the LGPS?

The new employer can offer LGPS by participating under an admission agreement (as is currently possible) or alternatively through a new concept whereby the Fair Deal Employer may agree to be the “deemed” employer for pension purposes and remain liable for pension funding and contributions. The default position is that the new employer must enter an admission agreement and take on the pensions risk. In either case, it is still possible for the parties to agree provisions on risk sharing (also known as "passthrough") through the outsourcing contract or the admission agreement.

What has been the industry response?

The industry is generally supportive, but there are significant concerns over the fine print. One key area of uncertainty is the concept of the Fair Deal Employer becoming the deemed employer. This concept is intended to make the outsourcing process less administrative and time consuming. However, it's not clear how it would work alongside TUPE from a legal perspective and dual employment status is likely to lead to confusion and potential disputes.

When will the changes happen?

In view of the industry's concerns, the government may need to go back to the drawing board once again. Bearing in mind this is its second attempt at introducing Fair Deal for local government (the last one being withdrawn last year), let's hope it is a case of third time lucky. Watch this space for further news once the government publishes its response.