Proposed Cap to Public Sector Exit Payments

May 2, 2019, By

In the summer of 2015, the Government announced plans to introduce a cap to exit payments made to employees of public sector bodies, proposing regulations to effect this cap under The Small Business, Enterprise and Employment Act 2015 (“the Act”).

After an initial flurry of interest and a consultation on the proposal, little further progress was made and the matter appeared to have been left by the wayside as the plans were never implemented.

However, the Treasury has claimed that more than 1,600 departing public sector employees received exit payments of more than £100,000 in 2016-17 at a cost of £198m. On the back of this, on 10th April this year the Government announced a further, and apparently final, consultation. As part of this consultation, draft regulations made under the Act have been published along with guidelines regarding how to exercise the proposed new powers.

The new consultation proposes to introduce a cap of £95,000 to exit payments, including:

  • Redundancy payments
  • Payments made under Settlement Agreements or via ACAS Conciliation
  • Ex-gratia payments
  • Payments for shares or share options
  • Payments in lieu of notice
  • Payments due under the terms of a fixed term contract
  • Payments made on a voluntary exit
  • Payments made to reduce/eliminate actuarial reductions to pension on early retirement
  • Any other payments made as a consequence of a loss of office/termination of employment

The consultation closes on 3 July 2019 and responses must be in by this date.

Early commentary on the matter seems to deal mainly with two issues:

  • The potential effect that the implementation of these regulations may have on members of the Local Government Pension Scheme, which still provides a mandatory right for employees who are made redundant when over 55 years of age to have immediate access to an un-reduced pension at the employer’s cost
  • How the provision in the Act enabling public authorities to ‘relax’ the restrictions in the regulations is going to be exercised

The concern regarding pensions appears to be that, in their present draft, the regulations do not address how the potential conflict between the proposed £95,000 cap and the mandatory right to a full pension when made redundant over the age of 55 will be managed.

Regarding the exercise of discretion, there is a requirement for public authorities to comply with Treasury Guidelines or to have the consent of the Treasury before relaxing the cap on exit payments.  Therefore, the ability to exercise discretion has not been given direct to the employer and may lead to protracted exit negotiations and disputes.

The concern is therefore that, rather than act as a curb on spending, the regulations in their current form may lead to more disputes and a fettering of the ability of public bodies to restructure and cut costs.