Public sector exit payments cap
18 July 2017
A question recently asked of our Advisory team prompted us to clarify the current position on public sector exit payments being capped at £95,000.
Regulations do not yet exist that create the public sector exit cap itself. The treasury, Scottish Ministers and Welsh Ministers have had the power to bring forward regulations since 1 February 2017, but they have not yet done so.
A statutory instrument brought The Enterprise Act 2016 (Commencement No. 2) Regulations 2017 into force on 1 February 2017. Part of this regulation brought Section 41 of the Enterprise Act 2016 into force on 1 February 2017 which inserts sections 153A, 153B and 153C into the Small Business, Enterprise and Employment Act 2015.
Geographical extent – these regulations apply to all four nations of the UK.
Section 153A confers a power to make regulations to restrict exit payments payable to employees of prescribed public sector authorities or holders of prescribed public sector offices as a consequence of them leaving employment or office to a maximum value of £95,000.
Section 153B provides for the treasury to make regulations under section 153A, save that the Scottish and Welsh Ministers are to make such regulations in relation to exit payments by relevant Scottish authorities and relevant Welsh exit payments respectively.
Section 153C provides that a Minister of the Crown, or where appropriate the Scottish Ministers or Welsh Ministers, may relax a restriction imposed by regulations made under section 153A, and makes further provision about the exercise of those powers.
Paragraph 4 confers a power to make regulations to amend public sector schemes to ensure that where the restriction on exit payments would have the effect of preventing immediate payment of an unreduced pension or preventing an employer paying an extra charge to the scheme, benefits are instead immediately payable subject to an appropriate early payment deduction, and that an individual may choose to buy out all or part of that deduction.
An exit payment for the purposes of these regulations is a payment of a prescribed description which includes any payment:
- on account of dismissal by reason of redundancy
- on voluntary exit
- to reduce or eliminate an actuarial reduction to a pension on early retirement or in respect of the cost to a pension scheme of such a reduction not being made
- ex gratia
- in respect of an outstanding entitlement
- of compensation under the terms of a contract
- in lieu of notice
- in the form of shares or share options
Action required by employers
In September 2016 the government published their response to the consultation on ‘Reforms to public sector exit payments’. The response outlined the government’s expectations that departments should begin work to produce proposals for reform for each workforce by the end of 2016.
The major workforces covered by existing statutory compensation schemes and other contractual exit arrangements were expected to begin reforms immediately. These are the: Civil Service, NHS, local government, teachers, police, firefighters and armed forces.
Chapter 5 of the consultation response outlines the ‘Process and timeline for reform’:
5.1 Consistent with the government’s view that it remains appropriate for the detail of exit arrangements to be negotiated at workforce level, departments responsible for the workforces will take forward the detailed design and analysis of proposals for exit payment reform, within the overall framework and principles for reform set out in this document.
5.2 Following the publication of this document the government expects departments to begin work immediately to produce proposals for reform for each workforce that are consistent with the terms set out in this document and with the government’s principles for reform.
5.3 As set out above, the government will consider the case for applying elements of the framework flexibly on a workforce by workforce basis. Examples of where the government may consider there is a case for flexibility may include where it can be demonstrated that a particular option may not lead to significant cost savings; where there is an alternative approach that may deliver commensurate cost savings; or where workforce demographics mean that a particular option may have unwarranted equalities or other workforce impacts.
5.4 The government expects departments to put forward proposals for reform within three months of the publication of this government response. Departments should then consult on proposals as appropriate and should follow the normal process of discussions and negotiations with Trade Unions and other workforce representatives in order to seek agreement to their reform proposals. The government expects this discussion process to be concluded, agreement reached and the necessary changes made to compensation schemes and other arrangements within nine months of the publication of this response.
5.5 Should it not be possible to achieve meaningful reform for one or more workforces, the government will consider options for primary legislation to take forward reform.
Chapter 6 outlines the position for devolved administrations:
6.1 In both the exit payment recovery and exit payment cap reforms, the government position has been that the reforms would apply to those areas which are the responsibility of the UK government. It would be for the Scottish government, Welsh government and Northern Ireland executive to determine if and how they wanted to take forward similar arrangements in relation to devolved bodies and workforces.
6.2 The government will take the same approach to cross-public sector exit payment reform. It will be for the Scottish government, Welsh government and Northern Ireland government to decide individually whether each should set a framework, with a view to seeking agreement on revised exit terms for devolved workforces. Should the government ultimately decide that primary legislation is required in taking forward further reforms, the UK government would request legislative consent motions from the devolved administrations where appropriate, which would give the relevant administration the option of including devolved workforces and schemes under any legislation the UK government brings forward.
6.3 However, if and when a legislative consent motion is required, it would be for the devolved administrations themselves to decide whether this is a desirable approach.
The government’s expectation is that the necessary changes be made to compensation schemes and other arrangements within nine months of the publication of their consultation response. That brings us to June 2017. Bearing in mind that this is not a legislative requirement, have all relevant departments actually had these discussions and agreed to implement the necessary changes? Watch out for a future quick poll on this subject but in the interim please email us at policy if you have any comments or feedback.