Initial contract eases pension fund burden

16 February 2005 by
Initial contract eases pension fund burden

Initial Catering Services is set to re-enter the state education sector after finding a way through a pension fund impasse.

Initial withdrew from the sector a year ago after deciding that it couldn't bear the risk of being liable for any shortfall in pension schemes of a local education authority (LEA) contract. Under the terms of new contractual provisions, which the Berkshire-based company has spent 12 months formulating, it will not be liable for any shortfalls. In the future, LEAs will top up the pot if, after a reassessment of the risk, there is not enough money to cover future payouts.

Initial is introducing healthy-eating menus in schools

Managing director Jim Walker said: "You can't sign up for something you cannot quantify. Unlimited demands from pension funds could severely damage the business. Sharing the risk is a win-win situation."

The problem arose last year when the Government introduced a Workforce Code of Practice. It ensures that local government workers on the payrolls of private contractors are paid the same as their government-salaried counterparts and have access to similar pension schemes. The dilemma facing private contractors is that an ageing population could mean a mounting tab.

Initial put its state operations on hold in February last year. "We had no difficulty with the rest of the code but we couldn't accept the pension fund liability - particularly when you consider that our own final-salary pension scheme was closed to new entrants two years ago," Walker said.

The company, which provides catering services at more than 2,000 UK schools, is currently in tender negotiations with LEAs in Portsmouth, Slough, Windsor and Maidenhead.

"Maybe there are some LEAs out there who won't accept it [the provision], but we have been invited to tender on these four contracts," added Walker.

Catering consultant Norman Deas believes that pension funds are the biggest issue facing independent contractors. "It can be an open chequebook. My advice is to look two or three times at the terms of a contract. Some of these hidden extras can push you over the edge, and often a lot of the relevant information is not forthcoming," he said.

  • Initial has launched two new standards of school menu: gold and silver. The company's new menus have adopted the Scottish Food Standards Agency's (SFSA) criteria as their yardstick. All menus will have fat levels below 10%, reduced salt, reduced sugar, added fibre and more fruit and vegetables. A silver standard menu meets the Scottish standards for fat and salt content, while, for 20p more, the gold menu meets all SFSA's requirements.

Source: Caterer & Hotelkeeper magazine, 17 February 2005

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