Important - £95k Exit Payment Cap revoked
In a surprising development on Friday 12th February 2021 , the government issued the Exit Payment Cap Directions 2021 which disapply parts of the Restriction of Public Sector Exit Payments Regulations 2020 in England with immediate effect. The Directions do not apply to exit payments made by a devolved Welsh authority; however, we understand the Welsh government will issue a similar direction shortly.
As the Directions disapply regulation 3, the exit cap no longer applies in England with effect from 12 February 2021. Updated guidance has been published on the Gov.uk website.
What does this mean?
For exits from 12 February 2021, LGPS administering authorities must pay qualifying scheme members an unreduced pension under Regulation 30(7) of the LGPS 2013 regulations. Scheme employers will be required to pay full strain costs in relation to those unreduced benefits, as notified by their administering authority. Employers should not make cash alternative payments to either the scheme member or the administering authority.
HM Treasury has issued guidance on the Directions. The guidance sets out HM Treasury’s expectation that employers should pay the additional sums that would be paid had the cap not applied for employees who left between 4 November 2020 and 12 February 2021. Local Government Association are aware that a number of different outcomes may have occurred based on the recommendations in the MHCLG letter of 28 October 2020, the subsequent Scheme Advisory Board commentary and decisions made by both administering authorities and scheme employers. The Local Government Association are currently preparing views on what actions should be considered in a variety of possible scenarios and will publish these very shortly.
We are not aware of any exits from any of our scheme employers where a member's total exit value exceed the cap. If you are aware of any exits, between 4 November 2020 and 12 February 2021, please contact firstname.lastname@example.org
The guidance also confirms that the government will revoke the exit cap regulations in due course, but that they will legislate again to tackle unjustified exit payments. We understand that the revocation of the exit cap regulations will not be retrospective.
This also means we will be changing our leavers form, quote request spreadsheet and forms to remove the Exit Cap information which was recently added. We will let you know when these have been updated.