Government Consultation - restricting exit payments in the public sector
The government first announced plans to cap exit payments in the public sector in 2015. On 10 April 2019 HM Treasury launched a consultation on draft regulations, guidance and Directions to implement the cap.
What is the Exit Payment Cap
The cap limits the exit payments made to employees of public sector bodies. The proposed cap of £95,000 would cover the total value of exit payments (before tax) made by an employer and includes the strain cost of early payment of pension and redundancy payments, plus any other compensation or severance payments (e.g. pay in lieu of notice, enhanced employer compensation lump sum payment etc.)
Impact on pension scheme members?
Where this applies then the value of the exit payments will have to be reduced to the point where the total value of all exit payments is equal to £95k.
For someone aged 55 or over who is made redundant or for reasons of efficiency, who is restricted to the £95k cap, we understand the possible options could be:
- Receive payment of a reduced payment and lump sum, but keep the redundancy and oter exit payments (limited to £95k cap)
- Give up some or all their redundancy payment or other exit payments to receive an unreduced or limit the amount of the reduction to the retirement benefits.
- Choose a mixture of 1 or 2 above, this means giving up some of the redundancy pay to remove some (but not all) of the reduction on pension and lump sum.
We are still waiting for further information from the government as to how these rules will apply to retirement benefits and further information will be published on our website once this information is available.