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The Actuary The magazine of the Institute & Faculty of Actuaries

Reform of 'Fair Deal' pensions creates opportunities

A Coalition Government reform of pension arrangements could open the floodgates for more businesses to tender for lucrative outsourced public sector contracts and could save cash-strapped local authorities millions and provide better and more efficient services to tax payers, the firm said.

Currently private sector businesses providing outsourced services for local authorities - carrying out anything from street cleaning to running leisure centres - are obliged to also take on any public sector workers previously carrying out those services.

Under "Fair Deal" businesses must shoulder the burden continuing their workers' costly final salary pension arrangements.

"As a result any private sector operator considering bidding for local authority work either adds a large margin into their bid to cover the uncertainty as to the future costs of those pensions, or else doesn't bother tendering at all," said Michael Harvey, senior consulting actuary at BBS Consultants & Actuaries.

"For instance, under the current Fair Deal rules, a business considering bidding for a local authority contract might discover that if they won that contract and took on a number of public sector workers with protected final salary pensions, future increases in the costs of those benefits could wipe the value in the contract."

Mr Harvey said the Fair Deal system had created an environment where local authorities were not getting Best Value for their taxpayers because firms bidding for work were either applying large margins into their tenders or pulling out of the process altogether, reducing the crucial competitive element of the outsourced process.

"In reaching their decision on the way forward the Government will have to balance up the need to obtain Best Value with the need to offer some degree of protection to the public sector workers being transferred to the private sector require," he said.

"However, in these times of austerity, the Government must take action which results in more firms being encouraged to bid for contracts hence creating a more competitive culture leading to more efficiencies and Best Value for local authorities and tax payers."