Our legal experts guide you through the pension implications for companies taking on NHS services

A great deal of discussion has gone on recently about primary care trusts letting go of provision, and the development of social enterprise and other vehicles to take on these services. There has also been considerable debate about the extent to which the staff in these organisations are entitled to the NHS pension scheme and associated benefits.

Membership of the NHS pension scheme

The most obvious routes for new provider bodies to become 'employing authorities' under the NHS pension scheme are by becoming primary medical services practices or out-of-hours providers. In order to qualify as a PMS practice, a provider would need to be a company limited by shares, with whom a PCT had entered into a specialist PMS agreement. To qualify as an out-of-hours provider, the provider must either be a company limited by guarantee, or a corporate body, whose membership includes general medical services or PMS contractors. The company or corporate body must have a contract to provide out of hours services, and must be run on a not-for-profit basis.

If a provider becomes an employing authority, its employees would have access to benefits under the NHS Pension Scheme. However, in the event of early retirement their pension would be subject to actuarial reduction. By contrast, NHS employees are eligible for payment of an unreduced early retirement pension on grounds of redundancy, interests of the efficiency of the service, or with the employe's consent.

Direction employer status

The employees of a direction employer are eligible for some of the benefits of the NHS pension scheme. The granting of directions under Section 7(2) of the Superannuation (Miscellaneous Provisions) Act 1967 is within the discretion of the secretary of state. However, guidance indicates that directions are generally used by charitable organisations or voluntary bodies. Some care in the community projects do continue membership of the NHS pension scheme for employees who were previously members of it.

Employees of a direction employer are not eligible for payment of an early retirement pension on grounds of redundancy or the interests of the efficiency of the service, or for payment of an early retirement pension with employer's consent but without actuarial reduction.

NHS injury benefits scheme and compensation for premature retirement

The NHS injury benefits scheme is governed by separate regulations, and these specifically exclude GP practice staff, alternative provider medical services, direction employees, and limited companies. The NHS compensation for premature retirement scheme is also governed by a separate set of regulations and is not part of the NHS pension scheme. Thus, it is difficult to see how employees of provider bodies could continue to receive these benefits upon transfer to a non-NHS organisation.

In conclusion, there are clear routes for provider bodies to enable their staff to access NHS pension scheme benefits. They can do this either by becoming employing authorities or direction employers. However, in neither case will staff have access to the full range of benefits that they enjoyed while employed by the NHS. Whether this becomes a major obstacle to the divestment of provider services by PCTs, and the development of social enterprise and other provider vehicles, remains to be seen.

Peter Edwards is a partner at Capsticks