LONDON, 28 November 2012 – Aon Hewitt, the human resource solutions business of Aon plc (NYSE: AON), has commented on the Response to consultation on the Fair Deal Policy, recently issued by the Government. "Fair Deal" was originally introduced in 1999 to protect the pensions of public sector employees who transfer under TUPE to a private or voluntary sector contractor.

On the Response document
Madalena Cain, head of the Public Sector Outsourcing team at Aon Hewitt said:
"The Response did not provide as much detail as we were hoping for after such an exercise. For example,
we will not be able to understand how contribution rates will be set for contractors who participate in the public service schemes until we see the final version of this guidance. While it is mentioned that they would 'generally' pay the normal employer contribution rate, the document suggests that there could be exceptions to that rule.  That could mean additional pension costs over and above the normal employer contribution rate. This is a critical point and contractors will be looking for greater clarity."

On implementation of the New Fair Deal policy
Madalena Cain said:
"It's not clear what the timescales are for implementing a new Fair Deal policy. Among other things, this introduces short term uncertainty for both Government departments and contractors who are, or will be, involved with the procurement of Government services. This uncertainty could translate to higher costs of procurement which in turn are likely to be reflected in bid prices.

"It has taken around a year and a half to issue this Response. We therefore expect that the Government may be looking to implement the new policy at any time between early 2014 and April 2015 – which is the date that most of the public service scheme reforms are due to be implemented."

On inconsistent application of Fair Deal
Madalena Cain said:
"Given Fair Deal is under review, it's a real opportunity for the Government to address the challenges around the inconsistent way it is currently applied.

"One area where clear guidance is required, is regarding bulk transfer shortfalls in a second generation transfer of staff. In our experience, many government procurement teams are unaware that each outsourcing authority is expected to make good this shortfall. This has led to the subsequent generation contractor having to price a very uncertain shortfall cost into their bid. And that all leads to poor value for money for the taxpayer."

 On subsequent generation transfers and the option for a contractor to set up a broadly comparable scheme
Madalena Cain said:
"A lot of detail remains unresolved and is open to further consultation. However, given the associated complexity and costs we do not envisage that many contractors will want to set up broadly comparable schemes to reflect the new CARE structure of the public service schemes, as well as transitional 'final salary' protections for older employees.

"If contractors taking on subsequent-generation contracts can use the public service scheme based on an acceptable employer contribution rate - coupled with cost transparency and control - it would not surprise us if the option of using a broadly comparable scheme is withdrawn when New Fair Deal is finalised."

Media Contact: 

Colin Mayes                                                  Giles Abbott
Aon Hewitt                                                      Capital MSL
01372 733689                                              020 7307 5340
colin.mayes@aonhewitt.com                    giles.abbott@capitalmsl.com

Notes to Editors

About Fair Deal
"Fair Deal for Staff Pensions" was issued by the Government in 1999 as guidance to central Government departments and agencies.  Fair Deal protects public sector employees who transfer under TUPE to a contractor's pension scheme by placing conditions on the pension provision that must be offered for past and future service benefits.
The present Government announced at its Spending Review that it intended to consult on Fair Deal in response to a recommendation made in the interim report of the Independent Public Service Pensions Commission. The Commission found that Fair Deal, coupled with current public service pension structures, creates a barrier to the plurality of public service provision.
The consultation document set out a range of options for future policy and subsequent transfers, and sought views from stakeholders.
Transfers from local government fall outside the new Fair Deal Policy and will be considered separately by the Department for Communities and Local Government.
Stakeholder responses to the Fair Deal Consultation have now been issued along with further consultation questions.

Aon Hewitt's Public Sector Outsourcing team
This team provides actuarial advice in relation to the pensions issues that arise when public sector staff transfer under TUPE to a contractor as a result of a government outsourcing. The team advises clients during the procurement stage and throughout the contract life cycle, both in relation to first and subsequent generation transfers of staff.

 About Aon Hewitt
Aon Hewitt is the global leader in human resource solutions.  The company partners with organisations to solve their most complex benefits, talent and related financial challenges, and improve business performance.  Aon Hewitt designs, implements, communicates and administers a wide range of human capital, retirement, investment management, health care, compensation and talent management strategies.  With more than 29,000 professionals in 90 countries, Aon Hewitt makes the world a better place to work for clients and their employees.  For more information on Aon Hewitt, please visit www.aonhewitt.com.

About Aon
Aon plc (NYSE: AON) is the leading global provider of risk management, insurance and reinsurance brokerage, and human resources solutions and outsourcing services. Through its more than 61,000 colleagues worldwide, Aon unites to empower results for clients in over 120 countries via innovative and effective risk and people solutions and through industry-leading global resources and technical expertise. Aon has been named repeatedly as the world's best broker, best insurance intermediary, reinsurance intermediary, captives manager and best employee benefits consulting firm by multiple industry sources. Visit www.aon.com for more information on Aon and www.aon.com/manchesterunited to learn about Aon's global partnership and shirt sponsorship with Manchester United.