Exit payment cap may become law later this month

Publication date: 06/10/2020 16:45:36

Ministry of Housing, Communities and Local Government (MHCLG) consultation on reform of exit payments in local government:

Don’t forget, the consultation on the reform of exit payments in local government ends on the 9 November 2020. It seeks information on:

  • the effects that the proposals for reform will have on the regulations which currently govern exit payments (including both redundancy compensation pay and early access to pensions) in local government,
  • the impact that the proposals for reform will have on the local government workforce.

As part of the proposals, certain members aged 55 and over receiving statutory redundancy payments will lose the right to receive unreduced pensions where a pension strain is payable.

£95k exit payment cap:

The £95k exit payment cap looks to be coming sooner than we thought. The date this becomes law looks like it could be late October (date still uncertain), but it's likely to be in place before any changes to the LGPS early retirement regulations under the wider exit pay reform. This is what we know so far:

  • The £95k cap legislation has gone through the House of Commons, but hasn’t been signed. This legislation will become law 21 days after the date it‘s signed, and could be in place by the end of October 2020.
  • As a result, the HMT £95k cap regulations could become law before the LGPS regulations are changed. As the rules stand the LGPS allow unreduced benefits to be paid in the event a redundancy or efficiency termination for a member over age 55. This would mean public sector LGPS staff who are retiring on redundancy or efficiency grounds will be subject to a £95k cap on employer exit payments but still have the ‘right’ under the existing LGPS regulations to an unreduced pension even if it’s worth more than £95k.
  • The standardised Government actuary factors used to work out strain costs, will be worked out nationally rather than at individual fund level, as they are now. These new national factors are currently under review.


Impact of HMT £95k exit cap 

Before either the £95K exit payment cap, or the proposed exit pay reform become law. 

Existing LGPS rules apply (for at least the next three weeks).

When the new £95K exit payment cap has become law but the proposed exit pay reform hasn’t become law.  

£95k cap in force but existing LGPS Regulations mean member should get an unreduced pension if aged 55 or over (strain cost could therefore tip the exit package over £95k).

When the new £95K exit payment cap has become law and the proposed exit pay reform has become law.  

£95k cap in force and LGPS regulations changed meaning members aged over 55 don’t get an automatic right to an unreduced pension (the reform proposals currently show that members will be able to choose from four different redundancy pension packages).


We expect central guidance to be given on this before any new regulations come into effect. This should give us more information which we'll be able to share with you, our employers.

The pensions team have stopped providing quotes for early terminations (redundancy, efficiency & mutual termination on business efficiency) cases because of these changes. If you know you've cases in the pipeline that will now be affected by this then please contact us.

We'll keep you up-to-date on this matter. If you'd like to discuss how these changes will affect your organisation please email pensions@shropshire.gov.uk.