The Treasury has drawn up plans to extend generous public pensions to college staff who are compulsorily transferred to private sector companies.
The director of public spending at the Treasury wrote to FE sector bodies earlier this month to float a proposal to open up its New Fair Deal (NFD) to colleges.
The Association of Colleges, the Sixth Form Colleges Association and Trades Union Congress have until October 8 to consult members and respond as officials plan to make a final decision “as soon as possible”.
The application of the New Fair Deal, a non-statutory policy, would mean private companies that take on college contracts for services such as cleaning, catering, facilities management or IT would have to honour some of the country’s most generous pension contributions to college staff transferred to them.
Gary Delderfield, partner and head of public sector pensions at Eversheds Sutherland, told FE Week this would mean that the contractor “pays the contributions into the pension fund and the employees have continuous membership of the scheme, so their pension benefits stay exactly the same as if they were still employed by the college”.
Nick Donlevy, the Treasury’s director of public spending, asked college representative bodies to provide their views on the impact of the extension on the workforce, recruitment implications and future outsourcing decisions.
The Association of Colleges (AoC) deputy chief executive Julian Gravatt told members in a briefing last week that he plans to tell the government the change will make it “harder” for colleges because contract prices could be negotiated upward or disincentivise suppliers from bidding altogether.
In its recent budget submission to the Treasury, the AoC said a New Fair Deal extension could create “new complexities” for college leaders, who spend 10 per cent of income on employer contributions to the Teachers’ Pension Scheme (TPS) or Local Government Pension Scheme (LGPS) – an estimated annual £450 million and £250 million on each.
“A new requirement to maintain precisely similar terms and conditions in outsourcing cases would create new complexities for college leaders, new costs and a risk of reduced numbers of bids to run services in what is already a complex sector,” the membership body said.
Most of the affected staff, such as cleaners, are likely to be part of the LGPS. Experts say the Treasury’s plans could be a challenge for contractors as the scheme has 80-odd funds of which the contribution rate differs across the country.
The LGPS employer contribution rate averaged around 21 per cent at its last triennial valuation in 2022, while the TPS employer contribution rate stands at 28.68 per cent.
“The cost of outsourcing the service will become more expensive because the contractor will now have to price in whatever the contribution rate is,” Delderfield added.
Gravatt said the proposal “reinforces” the case for the Department for Education to guarantee LGPS liabilities as it did with academy trusts in 2013, which assures that outstanding pension liabilities will be paid to the pension fund in the event of insolvency by an institution.
The guarantee would have covered St Mary’s College in Blackburn, the country’s smallest sixth form college, which went insolvent in 2022 and owed most of its £8.2 million debt – £5 million – to the LGPS.
Reform ‘now appropriate’ for FE
The Fair Deal was introduced in 1999 to protect government employees’ pension provision when they were outsourced out of the sector.
Their new employer was originally obliged to offer public sector staff a pension scheme that was “broadly comparable” to the public pension until 2013, when the policy was reformed.
The New Fair Deal allowed members of a public service pension – such as the TPS or LGPS – to remain eligible for the generous pension schemes when they are transferred to independent providers delivering public services.
But, in 2014, the government under David Cameron refused to extend the New Fair Deal to FE institutions “because they were private sector bodies and because it would not be consistent with the government’s policy at that time of increasing the level of autonomy they enjoy”.
Since the Office of National Statistics reclassification of colleges in 2022 as public sector bodies, the Treasury now believes it is “appropriate” to extend the non-statutory policy to FE colleges.
Donlevy said: “HM Treasury believes that the current justification for the exclusions of these bodies from NFD no longer applies and that it would therefore be appropriate to extend NFD to FE colleges.”
Paul Bridge, head of further education at the University and College Union, said the policy U-turn will be one of Labour’s “first big tests” after it was elected to deliver a fair deal for working people.
He added: “FE staff working for an FE corporation (college) have been government employees since the ONS reclassification in 2022. However, their public sector pensions have not been given the same level of protection as staff that work in other parts of the public sector. Where is the fairness in that?”
“The non-application of New Fair Deal is a political choice aided and abetted by employers who want to save on their pay bill rather than treat their staff with fairness and respect.
“Pensions are deferred pay and our members work in very challenging environments and deserve the same levels of pay and reward when in work, and dignity when they retire.”
A spokesperson for the Sixth Form Colleges Association said: “It is important to ensure that staff in colleges are not disadvantaged if they are compulsorily transferred to a private sector employer.
“We will be consulting our members on the proposal to extend the New Fair Deal to colleges and will share our view with Treasury officials in the coming weeks.”
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