For those organisations who participate in LGPS as a result of engaging with out-sourced contracts with local authorities there is a chance to make your views heard to the Department for Communities and Local Government (DCLG). A consultation was launched in May looking at proposed changes to the scheme regulations to implement policies on Fair Deal for staff and Freedom & Choice in pensions. The contact for the consultation is Vincent Kiddell at Vincent.firstname.lastname@example.org and responses must be received by 20th August 2016.
Initially I have to say that the consultation is welcome. The pension aspects of public sector out-sourced contracts can be complex, although they are undoubtedly made overly onerous due to a complete lack of consistency between Funds in their approach to operating them. This often adds unnecessary costs to the procurement process, can result in less than best value for local authorities and can often be very frustrating for tenderers and Funds alike. Any drive towards consistency, increased transparency and better communication would be valued.
In my full response available here, I set out a number of high level issues which I believe need to be addressed to achieve these objectives:-
Inconsistency between Public Sector Schemes – Funded and Unfunded
Currently unfunded schemes such as NHS, Teachers and Civil Service Schemes look much more attractive than funded schemes such as LGPS as the unfunded schemes only require employers to meet the contribution requirements and do not levy an exit debt at contract end. I believe it would be wholly consistent for LGPS to adopt a consistent ‘pass through’ process for all tendering work.
The Past Service Liability issue
The inability of LGPS to be able to identify and allocate past service liabilities between employers, apparently only being able to allocate it to the latest employer is an issue that remains the ‘elephant in the room’ causing untold additional complications as well as being patently unfair.
If an organisation is looking to procure a contract for a three year period why should they be burdened by multiple years of past service liabilities accrued by another employer (frequently a Council) and or built up under a former contract. The new contractor has and should have no responsibility for these liabilities.
Adopting this approach means there is much less potential variability in the costs of providing the pension benefits allowing tenderers to better manage pension risk and therefore supply the tendering authority with more competitive and certain pricing. It also removes the issue of potentially multiple cessation options at the end of a contract depending upon whether the contract is renewed or will come to an end.
The application of a cessation debt on a gilts basis for contractual out-sourcing is wholly inconsistent with other public sector schemes, adopts a basis which does not reflect the usually short term nature of contracting, represents an unreasonable funding premium over the costs that could have been achieved by the contracting authority pre tender and actively discourages participation from contractors resulting in poor outcomes for public service.
I would greatly encourage contractors to make their voices heard on these issues as part of this consultation.