Speaking following the CBI’s recent launch of its report “A question of balance”, on reforming pensions practice in public services contracting, John Prior, Head of Punter Southall’s public sector outsourcing team comments:
“The CBI’s call for public sector employees to be allowed to remain in their existing pension scheme when their work is outsourced to the private sector makes eminent sense. Such an approach would provide better value for money for taxpayers and would be welcomed by employees and their representatives.
"The main barrier to the CBI’s proposal is likely to come from HM Treasury, whose position is that all risks associated with a service that is being outsourced should normally transfer to the contractor, including pension risks.
"Well-informed contractors simply increase their contract price, recognising that the transferred pensions risk has a value, and will often need to price this risk on a “worst case” scenario. The Government’s desire to transfer risks therefore needs to be balanced against its objective of achieving value for money from outsourcing.
"Private sector contractors are often advised to price pensions at roughly double the cost that the Government charges public sector employers for the same benefits. Therefore, either the Government is basing its pension costs on over-optimistic assumptions or, as it would presumably argue, it can provide pensions more cheaply than the private sector. If the Government really believes that it can provide the same pension for half the price that the private sector would require then surely the “best value” solution must be for these pension risks to remain with the public sector.”
Ends
For further information or to speak with John please contact:
Penrose Financial
Roman Townsend
020 7786 4875
Trustee training - Pension scheme investment (September 2010)
