Public Sector Exit Payments – the cap is coming!
Our clients in the public sector will have noticed that the question of the cap on public sector exit payments is back, having been long on the horizon. The Regulations have now been made and will come into force on 4 November 2020. They will introduce the long-awaited £95,000 cap on public sector exit payments and apply to the whole of the UK.
You may remember that, back in 2015, the government announced its intention to consult on reforming public sector exit payments and, in particular, capping exit payments made to individuals at £95,000. In 2016 we reported that draft regulations has been published but nothing further had happened until July this year when introducing the cap became a priority again.
The new rules will provide for a cap of £95,000 on all exit payments made to any public sector employee, even if there is a contractual obligation to pay more. Payments which count towards the cap are:
- Redundancy payments (statutory and contractual);
- Payments made to reduce or eliminate an actuarial reduction to a pension on early retirement (pension strain costs) – there is consultation ongoing in respect of amending the LGPS to accommodate this;
- Payments made under the ACAS arbitration scheme or under settlement or COT3 agreements;
- Severance payment or ex gratia payments;
- Payments made in the form of shares or share options;
- Payments made in lieu of notice under a contract of employment to the extent that the payments exceed one quarter of the payee’s annual salary;
- Any other payment made as a consequence of loss of employment or loss of office, whether under a contract of employment or otherwise – this is a wide category and we need to await further government guidance to understand exactly what will be included here.
There are some payments which are expressly excluded from the exit payment cap, including payments in compliance with a court/tribunal order, payments in respect of accrued but untaken annual leave, death in service payments and any payment in respect of incapacity as a result of accident, injury or illness. Ministers will have the power to relax the cap in certain “exceptional” circumstances and will be obliged to do so in respect of certain payments which arise as a result of TUPE, discrimination or whistleblowing.
The provisions further guidance from the government is eagerly awaited. Any public sector organisations in the process of planning redundancies or senior employee exits will therefore need to ensure that no commitments are made which would fall foul of the cap. Contracts, policies and procedures may also need to be reviewed in light of these new restrictions, once more detailed guidance is issued.