The government issued a consultation proposing significant changes to how pension rights are protected for staff working in local government and those that have been transferred from local government employment to provide outsourced services. The reforms propose implementing a strengthened version of “Fair Deal” for the LGPS aligning it more with existing central-government practices. The proposals include ensuring the default scheme for outsourced contracts is the LGPS, the removal of alternative “broadly comparable” schemes (in most cases) and clarifying the roles and risks of contractors and public-employers.  

Background 

The original Fair Deal framework introduced in 1999 addressed pension issues when public-sector employees were transferred to private service-providers via outsourcing. Under the earlier arrangements, transferring staff had to be provided with either continued membership of a public-service pension scheme or offered a “broadly comparable” scheme.  

For local government, pension protections have been provided through the 2007 and 2012/2022 Directions. These allowed transferred employees to either join the LGPS or enter a broadly comparable scheme.  

Proposed changes 

The consultation document sets out several significant changes under the New Fair Deal proposals. 

Single access route and removal (aside from exceptional cases) of “broadly comparable” schemes: The government proposes that staff who are transferred from a Fair Deal employer for the provision of public services should be given access to the LGPS. However, the government has acknowledged that in some cases it may not be feasible to require LGPS membership. In those cases, a broadly comparable scheme may be offered or continue, but only in defined exceptional circumstances, and guidance will explain when this is justified.  

Elimination of the admission body route for future contracts: In many cases, service-providers currently enter the LGPS as “admission bodies”, a process which the government says is complex, costly, and creates risk. The proposal is that the admission body option would no longer be permitted for future local government outsourcings, and instead, the “deemed employer” model will apply.  

Definition of “Fair Deal employer” and “protected transferee”: The draft regulations will define which organisations count as Fair Deal employers. It will also determine which workers qualify as “protected transferees” i.e., staff who transfer under TUPE and who will retain continuous access to the LGPS  

Continuity of membership across retendering: Under the new proposals, a protected transferee’s access to the LGPS would continue even if their contract is retendered or transferred, so long as they continue to work “wholly or mainly” on the outsourced activities of the Fair Deal employer.  

Transfer in of final-salary benefits: The draft rules propose that protected transferees may, in certain cases, transfer benefits from a broadly comparable scheme into the LGPS, including preserving final-salary link benefits where appropriate.  

Clarification of responsibilities between contractors and the Fair Deal employer: The proposals outline how the service-provider (the “relevant contractor”) and the Fair Deal employer will share duties such as contribution payments, member applications, decisions on assumed pensionable pay, and administration.  

Contribution payments and risk-sharing arrangements: Under the proposed model, the contractor would pay the “primary contribution rate” (determined for the Fair Deal employer’s scheme membership), while the Fair Deal employer retains the “secondary contribution rate” (e.g., deficits/surpluses). The contract must decide whether the primary rate is fixed or floats throughout the contract term.  

Rationale and expected benefits 

The government stipulates that these reforms will provide fairer and more secure pension arrangements for employees transferring from local government employers to contractors, by ensuring continued membership of the LGPS rather than being placed into alternative schemes that may offer less.  

For outsourcers/employers, the reforms should reduce complexity, administrative burden, and actuarial risk. By removing the creation of various small admission-body employers, the number of LGPS employers and associated actuarial fees should be reduced. 

Clearer “deemed employer” route and pass-through contract arrangements may encourage more competition in local government contracting by reducing the pension cost premium built into bids due to uncertainty around pension risk.  

Areas for consultation and implementation 

The consultation seeks stakeholders’ views on the proposals and the potential issues arising from them.  

The draft regulations for the New Fair Deal changes (including a new Schedule 2A to the LGPS Regulations 2013) are published alongside the consultation. Statutory guidance will follow to support implementation and clarify issues such as definitions and contract design. 

The consultation opened on 13 October 2025 and will run until 22 December 2025.  

How Capsticks can help  

At Capsticks, our pensions team has extensive experience advising on all aspects of public service pension schemes, including the Local Government Pension Scheme (LGPS). 

If you are concerned about the impact of any of the proposed changes mentioned in this insight, particularly with regard to live or planned outsourcing exercises, please contact Kate Beech.