Restriction of public sector exit payments regulations 2020

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03 Nov 2020

In 2015 the government first announced plans to introduce a cap on exit payments in the public sector. The cap applies to the total amount payable when someone exits and so applies to the total of severance payments, any pension strain cost and notice payments in excess of three months.

The government recently accelerated implementation of these plans and legislation enacting the plans has now been made.

The Restriction of Public Sector Exit Payments Regulations 2020 are due to come into force on 4 November 2020.

The regulations impact on all public bodies listed in the schedules to the regulations, including schools.

These exit cap regulations will impact other regulations and policies, for example pension regulations for support staff and discretionary payments policies.

We have set out below some immediate impacts of these regulations on staff who leave on grounds of redundancy (after 4 November 2020) and will issue further guidance in the coming weeks and months as more information becomes available.

Impact on staff age 55 and over bring made redundant

The issue of pension strain costs being included in the exit cap will impact on support staff who are aged 55 and over and are members of the Local Government Pension Scheme (LGPS). This is because the LGPS currently has a provision to pay unreduced pension benefits to any member who is made redundant from the age of 55. The cost (to the employer) of paying these pension benefits early is referred to a pension strain cost. The exit cap regulations provide that redundancy payments are affected by any pension strain costs and we will look to explain this with examples in future guidance.

The LGPS regulations are currently being reviewed (and a consultation is underway) to bring them into line with the Exit payment regulations. It is hoped that new LGPS regulations will be published by early 2021. Until that time, it will not be possible to provide estimates of redundancy and pension benefits for support staff who are age 55 or over and are leaving on grounds of redundancy. This is due to the complexity caused by not having regulations and accompanying systems and processes which align with each other.

The impact for teachers and their pensions is not as much of an issue, given that teachers do not have the same automatic right to receive unreduced pension benefits if they are made redundant. If a school were to decide to pay unreduced pension benefits to a teacher aged 55 or over being made redundant (which is rare and would have to be in line with their own discretionary compensation policy) then the exit cap regulations would have an impact.

Impact for staff under 55 being made redundant

The actual pay that can be used in redundancy calculations will be limited to £80,000 – therefore anyone with contractual earnings over £80,000 will have their redundancy payments calculated using a sum of £80,000.

Other than the £80,000 limit, staff under aged 55 can continue to be paid redundancy payments in accordance with the Council policy that sees them paid at their rate of pay (rather than the current statutory redundancy pay weekly limit of £538). Special provisions on the rate to be used to calculate a redundancy payment apply to lower graded staff.

Further information

We will write further as more information is received.

If in the meantime you do have any query please do not hesitate to contact either the HR Consultancy team or the pensions team at Ealing.

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Last updated: 03 Nov 2020

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