Public sector workers will have the option to remain in the Local Government Pension Scheme (LGPS) in the event their job is outsourced, in a move which could safe-guard thousands from losing their pension pots in cases such as Carillion.

Under new proposals in a consultation launched by the Ministry of Housing, Communities and Local Government today, 10 January, staff will no longer suffer a compulsorily transfer to an independent provider should their role be sub-contracted, despite a change in their direct employer.

The move could potentially save thousands of workers like those in the Carillion pension schemes, and more recently Interserve, from entering the Pension Protection Fund (PPF), should their direct employer become insolvent.

Commenting on the new proposals, Minister for Local Government, Rishi Sunak, said: “We’re committed to making the Local Government Pension Scheme fairer and are seeking views on taking existing pension protections further.

“Staff who have no choice in the transfer of their role will, under these plans, have the peace of mind that despite their change in employer they will remain in the Local Government Pension scheme retaining their full membership and benefits.”

Under current government policy, known as ‘Fair Deal’, employers with staff who have been transferred from local government roles can be entered into a broadly comparable private pension scheme.

However, reforms which came into force in 2014 meant that central government workers who were transferred to a contractor were able to stay in their pension schemes. The government has tried to extend the policy to LGPS employees on two previous occasions.

In 2016, the Ministry of Housing, Communities and Local Government consulted on introducing greater pensions protections for LGPS employers, however, the government’s response, delivered in April 2018, outlined a number of concerns including a growing administrative burden for LGPS administrators.

According to the new consultation, it has given “full consideration to the points raised”.

Despite this, Lane Clark and Peacock partner, Bart Huby, believes there are still some complex obstacles to overcome.

"Our main concerns with the proposals on first viewing is that they include a number of potentially complex contract options which local authority outsourcers and contractors bidding for contracts will need to understand.

"As a result, there are some key areas where, under the proposals, guidance is due to be provided by the LGPS Scheme Advisory Board to help local authorities and contractors make this work in practice, and it will be very important that this guidance is both clear and pragmatic. Whether this is achievable will be the acid test."

The government said that it does not expect its proposals to have an adverse impact on any section of the LGPS workforce, and that they are intended to “equalise pension rights between those who have and have not been outsourced from their LGPS employer”.

Furthermore, the consolation also suggests to transfer LGPS assets and liabilities when employers in the scheme are involved in a merger or takeover.

The consultation response deadline is Thursday 4 April 2019.

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