Exit payment cap consultation update
On 21 July 2020, HM Treasury published the long awaited Government response to the consultation on restricting exit payments in the public sector to £95,000. This was followed by the draft regulations for capping public sector exit payments.
It's important you understand if the exit cap will apply to you as an employer, and if so, how this could affect any future exits your organisation agrees for your staff. The draft regulations include a list of employers who'll be covered by the cap. You can check the schedule to the draft regulations to find out if your organisation ‘type’ is included on this list.
You can read the Government response to the consultation, as well as the original consultation documents issued in April 2019 and the LGA response in the 2019 section of the Non-scheme consultations page of www.lgpsregs.org. You can also read our employer news post from last year which gives key points about the consultation.
The regulations must be approved by both houses of parliament and will come into force 21 days after that process is complete. We're expecting revised HMT directions and guidance on the implementation of the cap and the waiver process.
We understand that the regulations will affect LGPS members in England and Wales who currently qualify for an unreduced pension because of redundancy or efficiency retirement. If the cap is breached, then the member may have to take a reduced pension which isn’t an option in the current LGPS regulations. The consultation suggests the cap will be set at £95,000 and the draft regulations include redundancy payments and pensions strain costs to be part of the payments included in the cap. The Ministry of Housing, Communities and Local Government (MHCLG) is looking at options to introduce a choice, allowing members in this position to choose deferred benefits instead. We also expect the introduction of a standard strain cost calculation so that the cap will apply equally to members across the country.
The LGPS Scheme Advisory Board have produced a helpful summary which can be found on the Public sector exit payments cap page of www.lgpsboard.org.