A Cap on Public Sector Exit Payments – Draft Regulations Published

19 November, 2015
by: Cripps Pemberton Greenish

The government intends to end six-figure exit payments for public sector workers by introducing a cap and has published its draft regulations following a government consultation.

The cap will initially be set at £95,000 and will apply to payments in relation to:

  • voluntary and compulsory redundancies
  • other voluntary exit payments
  • the reduction/elimination of an actuarial reduction to a pension upon early release 
  • discharging liabilities under a fixed-term contract
  • payments of shares on loss of employment
  • any other payment (contractual and non-contractual) made due to loss of employment, including payments in lieu of notice.

The cap will not apply to all payments, in particular, payments made in respect of death or injury, contractual bonus payments, and damages ordered by a court. The relevant Minister or, in the case of a local government exit payment, the full council, can waive the cap in exceptional cases.

It is intended that the regulations will only apply to those public sector authorities included in the Office for National Statistics’ list, however the government intends to have powers to add and remove bodies from the list on a case by case basis. In its consultation response, the government stated that it does not believe that individuals can be excluded from the regulations solely because they work “for organisations that are outside of central and local government”. The government also does not believe: “that some public sector organisations should be exempt based on criteria relating to the degree of day-to-day government involvement with these organisations (over statutory independence).” Other bodies including the armed forces, the BBC, Channel 4, RBS and the Bank of Scotland will be exempt but the government expects them to introduce their own corresponding caps.

It is envisaged that the proposed regulations will be inserted into the Small Business, Enterprise and Employment Act 2015 by the Enterprise Bill which is currently progressing through Parliament.

As outlined above it seems that the cap will also apply to the cost to the employer of funding early access to unreduced pensions, which in many cases can be accessed from age 55. The cap is therefore going to have a significant impact on the organisations affected, who are currently used to providing exit packages in excess of this cap.