NHS pensions and outsourcing

Under Fair Deal a service provider, to whom public sector employees transfer under TUPE as part of a public-private sector outsourcing arrangement, has two options in relation to pension provision for those employees. It may either (a) offer them membership of a broadly comparable scheme or (b) apply for 'direction body status' which will allow the transferring employees to remain within the NHS pension scheme. This route has historically only been available to a limited range of providers but it seems that 'new Fair Deal' will allow a wider range of non-NHS organisations to access the scheme so outsourcing contracts have to be flexible enough to provide for both scenarios.

There is likely to be a significant cost difference to the contractor in deciding which route to go down. Setting up a broadly comparable scheme will be significantly more expensive to the contractor than participating in the NHS pension scheme as a direction body (the NHS pension scheme's employer contribution rate being 14%). Accordingly the procurement process will need to flush out the intentions of the service provider and the price they pay should be determined by reference to which route they opt for and the contract must provide for a price adjustment depending on which route the service provider adopts. This should avoid a windfall accruing to the service provider by virtue of the fact that the price paid by the contracting authority assumes that the service provider will have to make contributions the higher rates seen in broadly comparable schemes when actually it is only contributing 14% under the NHS pension scheme. The NHS Pension Scheme may well ask for confirmation that this adjustment has been made in the outsourcing agreement prior to approving direction body status for the service provider.

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