The Department of Health has effectively barred outsourced health service employees from the NHS pension scheme in a bid to cut the government's growing liabilities.

NHS organisations had been hoping to use the so-called "retention of employment" form of secondment, which lets transferred staff remain members of the NHS pension scheme.

But in a letter to all NHS chief executives earlier this month, DH director general of workforce Clare Chapman said that as of 13 January the DH would only honour arrangements made in two narrow cases: "soft" facilities staff at private finance initiative hospitals such as cleaners and caterers, and staff at independent sector treatment centres.

Pension manoeuvres

Trusts have been using the rule to get around the problem of private contractors being unable to match NHS terms and conditions. For example Guys and St Thomas's foundation trust has outsourced its pathology services but still offers employees full access to the scheme.

The DH is reviewing use of the retention of employment rule for the Treasury, with results due this autumn. Meanwhile, there is little it can do about foundation trusts, which can enter into contracts using the rule without DH consent.

Neil Bhan, a partner at law firm Beachcroft, said the government was concerned primary care trusts would use the rule when outsourcing provider arms. "The Treasury is concerned about the cost to the taxpayer of any significant increase in the number of employees effectively managed by private sector service providers but still with access to the NHS pension scheme."

CBI health policy adviser Chris Heathcote said the move closed off another opportunity for private companies to operate on a level playing field with the NHS.