The government intends to end six-figure exit payments for
public sector workers by introducing a cap and has published its draft
regulations following a government consultation.
The cap will initially be set at £95,000 and will apply to
payments in relation to:
voluntary and compulsory redundancies
other voluntary exit payments
the reduction/elimination of an actuarial
reduction to a pension upon early release
discharging liabilities under a fixed-term
payments of shares on loss of employment
any other payment (contractual and
non-contractual) made due to loss of employment, including payments in lieu of
The cap will not apply to all payments, in particular,
payments made in respect of death or injury, contractual bonus payments, and
damages ordered by a court. The relevant
Minister or, in the case of a local government exit payment, the full council,
can waive the cap in exceptional cases.
It is intended that the regulations will only apply to those
public sector authorities included in the Office for National Statistics’ list,
however the government intends to have powers to add and remove bodies from the
list on a case by case basis. In its
consultation response, the government stated that it does not believe that
individuals can be excluded from the regulations solely because they work “for
organisations that are outside of central and local government”. The government also does not believe: “that some public sector organisations
should be exempt based on criteria relating to the degree of day-to-day government involvement
with these organisations (over statutory independence).” Other bodies including the armed
forces, the BBC, Channel 4, RBS and the Bank of Scotland will be exempt but the
government expects them to introduce their own corresponding caps.
It is envisaged that the proposed regulations will be
inserted into the Small Business, Enterprise and Employment Act 2015 by the
Enterprise Bill which is currently progressing through Parliament.
As outlined above it seems that the cap will also apply to
the cost to the employer of funding early access to unreduced pensions, which
in many cases can be accessed from age 55.
The cap is therefore going to have a significant impact on the
organisations affected, who are currently used to providing exit packages in
excess of this cap.