The CFDG has called for the government to reform the Fair Deal policy, saying that it must be changed if charities are to be more involved in public service delivery.

The finance directors' body has responded to the Treasury's consultation on the rules, which dictate that charities taking over public services must give the staff they take on equivalently-sized pensions.

According to CFDG, this has resulted in charities either inheriting unmanageable pension liabilities or refraining for bidding for contracts to avoid these risks.

The response warns that the Fair Deal can result in a two-tier or multi-tier workforce with varying standards of pension provision.

It adds that local authorities often refrain from giving full details of their pensions liabilities in a timely fashion, if at all, and many charities do not have specialist pensions knowledge and are ill-equipped to assess their options fully.

CFDG suggests that one alternative could be for charities to be given Admitted Body Status with a pass-through arrangement, whereby staff would stay within their public sector pension scheme but the charity would pay an agreed contribution.

Caron Bradshaw (pictured), CFDG’s CEO, said: “Aside from the practical problems with Fair Deal, which our response outlines, the policy serves to deter many would-be providers capable of providing specialist, value for money services.

“In a recent survey of our members involved in public service delivery, 48 per cent said that they had been put off from bidding for contracts because of the risk of liabilities – almost all said that the biggest of these risks was pension liabilities.”