Update on the exit payment cap

Publication date: 30/05/2019 11:11:24

In May 2015 the government announced that they planned to cap exit payments for public sector workers. They proposed a cap of £95,000 which would apply to all types of payments relating to individuals leaving their job.  

Although the original consultation began almost four years ago, HM Treasury haven't confirmed how the cap will work in practice, and when it’ll be applied. However, on 10 April 2019, they released a further consultation which closes on 3 July. The full consultation document can be found under Related Links.

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

  • The maximum exit payment remains at £95,000 and includes redundancy payments (including statutory redundancy payments), severance payments, pension strain costs (which arise when a Local Government Pension Scheme (LGPS) pension is paid unreduced before a member’s normal pension age), and other payments made because of leaving an employment.
  • The cap will affect a wide range of public sector employers, but not all employers in the LGPS. 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 the value of any early retirement pension strain costs will be included in the cap. Therefore, payment of unreduced early retirement pensions may be severely restricted for some employees – this goes against current LGPS rules so there would need to be changes to LGPS regulations.
  • The cap may be waived in some situations. Every waiver will need to be justified and requires 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 are delayed, could still be paid under the old rules.  

There are clearly details which 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 covering how the cap could be administered. 

We'll keep you posted on any further information we receive. Updates will also be provided via our news page.