Revival of the exit payment cap

Publication date: 26/04/2019 14:56:00

Back in May 2015, the government announced its intention to cap exit payments for public sector workers. It was proposed that a cap of £95,000 would apply to all types of payments in relation to individuals leaving employment.  

Although the original consultation began almost four years ago, HM Treasury are yet to confirm exactly how the cap will work in practice, and when it’s due to be applied. However, on 10 April 2019, they released a further consultation which will run for 12 weeks and closes on 3 July.

The proposals will have an affect on the processes and responsibilities of employers as well as Local Government Pension Scheme (LGPS) administering authorities. Therefore, HM Treasury welcomes responses to the consultation from employers and employees, pension, pay and HR experts, and anyone else who might be impacted by the proposals.

We encourage you to share information about the consultation with all relevant people within your organisation to ensure they have an opportunity to respond. 

The consultation information can be found on the government website, a link to which is under the Related Links box.

While there's a lot to digest, we’ve picked out some key points:

  • There’s no change from the earlier proposal that the maximum exit payment will be £95,000 and will include redundancy payments (including statutory redundancy payments), severance payments, pension strain costs (which arise when a LGPS pension is paid unreduced before a member’s normal pension age), and other payments made as a consequence of terminating an employment.
  • The cap will affect a wide range of public sector employers but not all employers in the LGPS (see below). For example, all council employees in England and Wales, fire authorities, police forces, academies and schools are included in the proposals.
  • Certain employers in the LGPS (for example, Universities and Colleges) don’t seem to be covered in the consultation.
  • It's proposed that the value of any early retirement pension strain costs are to be included in the cap. Therefore, payment of unreduced early retirement pensions may be severely restricted for some employees – this goes against the current LGPS rules therefore amendments to LGPS regulations would be required.
  • The cap may be waived in exceptional circumstances. Every waiver will need to be justified and require consent from the relevant Minister, the Full Council, or Treasury.
  • The consultation mentions that exits with a leave date before the cap is effective, which have been agreed but get delayed, could still be paid under the old rules.  

There are clearly details which will need to be ironed out in relation to the LGPS. The Ministry of Housing, Communities and Local Government (MHCLG) are expected to run a separate consultation which should cover the agreement and common costing procedures to be put in place, as well as factors for strain payments.

A summary of the proposals has been produced by the LGA and can be found under the Related Links box.

We've been keeping members up to date with news on the exit payment cap since its announcement back in 2015 and we'll be letting members know about the latest consultation via our website and email alerts. You may wish to share the proposal information with all of your employees too.

It's important you identify whether the exit cap will affect you as an employer, and you understand the implications of the proposals on any future exits your organisation agrees.

We'll keep you posted on any further information we receive.