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29 September 2016

Update: Further reforms to exit payments - Government consultation response

The Government has issued its response to its consultation on further reforms to exit payments, which are in addition to the £95,000 cap on exit payments and the recovery provisions for those earnings £80,000 or more.

Below is a summary of the main points from the Government’s response and the next steps that we envisage will occur.

The Government is planning to go ahead with its proposals as set out in the original consultation document. It will set a common framework of upper limits which should be applied to the main elements of compensation provision across the main public sector schemes. The Government believes that applying these upper limits across the schemes will mean there will be greater consistency between the schemes and would bring public sector terms more in line with exit terms more commonly available in the wider economy.

The framework is as follows:

  • A maximum tariff for calculating exit payments of three weeks’ pay per year of service. 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 retirement age.
  • Action to limit or end employer-funded early access to pension as an exit term. As part of an overall package the Government will consider proposals appropriate to each workforce, including proposals to:
    • 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
    • remove the ability of employers to make such top ups, or offer greater flexibility to employers to determine the specific circumstances in which they would be available
    • 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 

However, the Government does not want to introduce a cross-public sector scheme at this time. Instead, the Government proposes that each department responsible for a particular workforce will devise its own scheme within the framework. This will be introduced through negotiation with the trade unions, where existing schemes form part of a collective agreement.  

The timescale for this is to draw up a scheme within 3 months from the publication of the response (therefore by 26 December 2016), following which there will be a period for consultation and negotiation. The Government has said that if a particular workforce fails to have implemented the reforms within 9 months (i.e. by 26 June 2017) it will consider making changes through legislation.


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