Government launches further consultation on capping public sector exit payments

After three years on the shelf, the Government has dusted off its plans to restrict termination payments in the public sector to £95,000. Its latest consultation on these plans, published on 10 April, proposes broadly similar arrangements to those last canvassed in 2016, though there have been some refinements. The consultation closes on 3 July.

What organisations are covered by the proposals?

The Government has published a list of bodies which will be in the scope of these new rules. They will apply across the whole of the NHS (including NHS Trusts, special health authorities and clinical commissioning groups) as well as most of central and local government.

How will the cap be calculated?

The basic rule is that all payments made “in consequence of termination of employment” will be included in the calculation of the cap, whether these are paid directly to an employee or to a third party for their benefit. This will include the cost to a pension scheme of paying an unreduced pension to someone who takes early retirement, even if no payment needs to be made into the scheme to purchase such a benefit.

However some payments will be excluded from the cap. These include death in service and invalidity payments, holiday pay, and payments made in compliance with court or tribunal orders. Contractual notice pay will also be excluded, provided it does not exceed a quarter of the departing employee’s annual salary. This last exclusion amounts to a change from the earlier versions of these proposals, which would have included all notice pay in the calculation of the cap.

Is there power to relax these restrictions?

In the case of the NHS, the power to relax the restrictions can only be exercised by a minister. As the Government puts it in its draft guidance notes: “this safeguard is in place for use in exceptional situations, including where imposing the cap would cause genuine hardship”.

When will these proposals be implemented?

The short answer is that we do not know: no implementation timetable has yet been published. However given the consultation deadline, it seems a reasonable assumption that the new measures will not take effect before April next year, particularly given that further legislation may be required to relieve public sector employers of any contractual obligation to confer pension benefits valued in excess of the cap.

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