Exit payment cap and recovery update | Shropshire County Pension fund

Shropshire County Pension fund

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Exit payment cap and recovery update

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Exit Cap

Following the consultation earlier this year (see our earlier post), looking at a wide range of possible reforms to early exit arrangements across the public sector. On the 26 September 2016 the Government issued its response. A summary can be found below.

Exit Payment Recovery

The recovery regulations for those earning £80,000 or more who leave public sector employment and return within a year are expected to be published and in force this year, subject to being passed by both Houses of Parliament under the affirmative process.

Government response to the further consultation on exit payment reform.

The government has recently responded to the further consultation on exit payments confirming that it intends to proceed with plans for further reform.

Summary of the proposals

  • a maximum tariff for calculating exit payments of three weeks’ pay per year of service but employers could apply tariff rates below these limits
  • a ceiling of 15 months on the maximum number of months’ salary that can be paid as a redundancy payment. Where employers distinguish between voluntary and compulsory redundancies there may be a case for maintaining a differential by applying a lower limit. Likewise, where employers offer voluntary exit packages that are not classed as redundancies there may be a case for applying a different maximum. Employers could apply lower limits, as some do at present.
  • a maximum salary on which an exit payment can be based. As a starting point the government will expect this to align with the existing NHS scheme salary limit of £80,000
  • a taper on the amount of lump sum compensation an individual is entitled to receive as they get closer to their normal pension age
  • action to limit or end employer-funded early access to pension within exit packages. As part of an overall package the government will consider proposals appropriate to each workforce, including action to:

o cap the amount of employer funded pension ‘tops ups’ to no more than the amount of the redundancy lump sum to which that individual would otherwise be entitled

o remove the ability of employers to make such top ups altogether, or offer greater flexibility to employers as to the circumstances in which they are available

o increase the minimum age at which an employee is able to receive an employer funded pension top up, so that this minimum age is closer to or otherwise linked more closely with the individual’s normal pension age in the scheme in which they are currently accruing pension benefits or to which they would be entitled to belong if they were accruing benefits

Who is in scope?

  • current and future public sector employees
  • the major workforces covered by existing statutory compensation schemes and other contractual exit arrangements. These are the Civil Service, NHS, Local Government, Teachers, Police, Firefighters and (taking account of the unique nature of the occupation) Armed Forces
  • those covered by any new compensation schemes set up for public sector employees
  • in other areas, and for smaller public sector workforces, the government would encourage reforms consistent with the principles set out in this response
  • devolution: the policy would extend to all employments where compensation policy and practice is within the competence of the UK government. The Scottish government, Welsh government and Northern Ireland Executive would determine if and how they wanted to take forward similar arrangements in relation to devolved bodies and workforces.

Transitional arrangements

The government will consider the case for protection for those with exits formally agreed on terms that applied before new workforce exit compensation arrangements come into effect. The government expects the details of such protection will form part of the agreements reached by the relevant department with each workforce in scope of the reforms.

Timing

The response confirms that the government expects departments to produce packages consistent with the framework above and consult on these where appropriate.

The government will expect departments to produce these proposals within three months of the publication of the response (i.e. by 26 December 2016) and to have completed negotiations and made the necessary amendments to exit arrangements within nine months of the publication of the government response (i.e. by 26 June 2017).

Further updates will be provided by the Fund once available. For more information see FAQ.

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