The Government has published its response to the consultation on reforms to public sector exit payments. Despite the fact that the overwhelming response to the consultation was opposed to the proposals, HM Treasury has confirmed that it intends to push ahead with the changes in any event and expects departments to start restructuring their exit terms immediately.

In 2015 the Government announced its intention to consult on the possibility of introducing exit payment terms across the public sector. The rationale was to reduce the costs of redundancy payments and ensure greater consistency between different elements of the public sector. It set out a package of proposed maximum levels for the calculation of exit packages to apply across the public sector, subject to negotiation at workforce level.  The proposals were stated to be underpinned by the key principles of fairness, flexibility and modernity.

The consultation process closed in May. Many of the 350 responses were opposed to the proposals but HM Treasury has now confirmed that it intends to push ahead with the proposals as it is believed these could save the Government £250 million per year while still maintaining a good level of compensation for individuals. The response stated that the proposals “better reflect factors such as improvements in life expectancy; ensure greater consistency between the terms available to different public sector workforces; and bring public sector exit terms more in line with those commonly available in the wider economy”.

The framework which is to apply imposes the following:

  • a maximum tariff for calculating exit payments of three weeks’ pay per year of service. Employers could apply tariff rates below these limits;
  • a ceiling of 15 months on the maximum number of months’ salary that can be paid as a redundancy payment. Where employers offer voluntary exit packages that are not classed as redundancies there may be a case for applying a different maximum;
  • a maximum salary on which an exit payment can be based. As a starting point the government will expect this to align with the existing NHS scheme salary limit of £80,000;
  • a taper on the amount of lump sum compensation an individual is entitled to receive as they get closer to their normal pension retirement age;
  • action to limit or end employer-funded early access to pension as an exit term. As part of an overall package the government will consider proposals appropriate to each workforce, including proposals to limit the amount of employer-funded top ups for early retirement, or removing access to them altogether, increase the minimum age requirement at which an employee can receive an employer-funded top up, or introducing greater flexibility as to the circumstances in which such top ups are available.

The government believes that it is appropriate for exit arrangements (within this framework) to be determined at workforce level, including through collective agreements where this is currently the case.

The government wants departments to produce proposals for reform that are consistent with the new framework by the end of 2016 and then consult on the proposals with a view to obtaining agreement as soon as possible.  At present the aim is to conclude this process by the end of June 2017 but if this is not possible the government will consider options for primary legislation to take forward reform. Given the original opposition to these proposals, and the heavily unionised nature of the public sector, cynics may be forgiven for questioning the likelihood of any agreement being reached in this timescale.

It is also worth remembering that the Government is also looking at other ways to curb spending in the public sector on exit payments.  There has recently been consultation on changes to the Civil Service Compensation Scheme and, in addition, draft regulations have been published (but are not yet in force) to:

  • Impose a cap of £95,000 on the total aggregate value of most public sector exit payments
  • require high-earning employees leaving the public sector to repay some or all of their exit payments if they return to public sector employment within 12 months of their departure.

It is clear that the government is intent on reducing the costs of exiting employees in the public sector and we will almost certainly see change in this area over the next few years.

Source: HM Treasury: Consultation on reforms to public sector exit payments: response to the consultation 26 September 2016.

To learn more about the issues in this article and how they may affect you, please get in touch.