In a move that will be broadly welcomed by employees, NHS bodies and private sector contractors alike, the Department of Health has recently revised its policy relating to the issue of New Fair Deal NHS Pension Directions to private sector contractors who have been successful in the context of contract re-tenders.
The position until now
New Fair Deal directions and determinations allow employees to remain in the NHS Pension Scheme when their employment is transferred under TUPE to a private sector contractor and allows their new employer to join the scheme as a scheme employer. Importantly, they also allow employees who were previously transferred to a private sector contractor and who were offered access to a "broadly comparable" pension scheme under old Fair Deal to re-join the NHS Pension Scheme when the contract they work on is re-tendered. Those employees also need to be offered the option to transfer the rights they have accrued in that broadly comparable scheme across to the NHS Pension Scheme when they re-join. This is often referred to as a "bulk transfer". It can involve a lengthy and complex process of negotiation between the Government Actuary’s Department (GAD) and the actuaries to the incumbent contractor’s broadly comparable scheme to determine the terms which will apply in order to set the amount to be transferred between the two schemes.
The Department of Health’s pensions policy team had, until recently, instructed the NHS Business Services Authority not to issue New Fair Deal directions and/or determinations to contractors who have been successful in securing an NHS contract on a re-tender in cases where bulk transfer terms had yet to be agreed. Given the time taken to complete the bulk transfer process, which is quite often not initiated during the procurement process, as it should be in accordance with relevant Department of Health guidance, individuals eligible to return to the NHS Pension Scheme under a New Fair Deal pensions direction or determination were not being formally re-admitted to the NHS Pension Scheme for some considerable time. This was the case whether or not their employment had been transferred under TUPE to a new employer, or a new contract had been awarded to their existing employer. In a number of cases, a new contractor’s application was being held up through no real fault of its own, given that the negotiation of bulk transfer terms is mainly an issue to be settled by an incumbent contractor’s actuary and GAD.
Employees being transferred to a new employer on a contract re-tender will usually cease to be eligible for continued membership of the broadly comparable pension scheme of the incumbent contractor ahead of the bulk transfer process being initiated, meaning that although they are technically eligible to re-join the NHS Pensions Scheme under New Fair Deal, there is often a "limbo" period where they are no longer members of the broadly comparable scheme, nor technically members of the NHS Pension Scheme. This remains the case until the NHS Pensions direction/determination is issued. This resulted in a difficult and unsettling situation for the individuals and employers involved in the process, particularly in the event of retirement, ill-health or death in the intervening period.
The revised position
The intention of the Department of Health was always to grant entry to the NHS Pension Scheme for eligible individuals from the first day of their eligible employment. Accordingly, New Fair Deal directions and determinations can now have retrospective effect where necessary, meaning that the direction or determination will be back-dated to whichever date is relevant – be that the date of the TUPE transfer to the new employer, or the day after membership of the broadly comparable pension scheme ceases, if different. There will therefore be no gap in pensionable service, even if the direction or determination is not issued for some time after the relevant trigger date. There should also be no issue with issuing the direction or determination for the new employer at the point of transfer, as long as all relevant transferring employees to be covered under the document have been identified and agreed in advance of the staff transfer date.
This will be particularly welcome for new contractors who receive employees with Fair Deal rights from an incumbent contractor under TUPE. They will no longer have to wait until that incumbent contractor and the actuaries of its broadly comparable scheme conclude their negotiations with GAD with regard to agreeing bulk transfer terms before being able to secure their own pensions direction/determination in respect of the future service of the relevant employees. It will also help contracting authorities who have also found themselves in a difficult position where negotiations between GAD and actuaries to a relevant broadly comparable scheme hit complications. Finally, it will no doubt be welcome for the affected employees, who now know they should not find themselves in "limbo" following a contract re-tender.
If you would like further details on the change of policy and its implications, please contact Alex Kenworthy in our Pensions Team.