Regional update on Public Sector £95K Exit Cap Regulations
Regional update on Public Sector £95K Exit Cap Regulations
Here is a summary and explanation of what is known so far about the introduction of Public Sector £95k exit pay regulations
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It is anticipated that the Regulations will become effective at the beginning of November 2020 (exact date to be confirmed).
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All payments related to the following are part of the Regulations
- Redundancy payments
- Payments made to reduce or eliminate an actuarial reduction to a pension on early retirement (known as pension strain costs)
- Compensation under the ACAS arbitration (other than those made in respect of discrimination and whistleblowing claims)
- Severance payments
- Payments made in the form of shares or share options on loss of employment
- Payments made in lieu of notice under a contract of employment that exceed one quarter of the employee's annual salary
- Any other payment made because of loss of employment, whether under a contract of employment or otherwise.
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By including pension strain costs, which only affects Local Government, this will adversely impact on members who have maximum service within their pension scheme.
Status of exits agreements already made
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Whilst we understand exit agreements agreed and in place will be honoured if the exit occurs before the implementation date, we are waiting for written clarification of this. This understanding is based on the following advice from the Treasury "Any exits already agreed before the cap comes into force will be paid in full. This includes any that occur during the 21-day period between the regulations being made and coming into force. If an exit occurs after that point then the cap would apply, even if the terms were agreed beforehand, however in some of these cases it might be appropriate for the discretionary waiver to be applied e.g. if the exit has been delayed for reasons outside of the individual’s control".
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GMB understands the legal position to be that the cap would apply and then employers would need to take a view, whether the discretionary waiver is appropriate on a case by case basis.
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Currently, Local Government employers cannot implement the cap if the member of staff is over 55, as there are conflicting regulations that stop any alternative method of dealing with the pension rights under the scheme. A separate consultation has been launched that aims to change those regulations to enable the cap to apply without breaching these scheme regulations – but this will take some time to achieve. This will hopefully mean employers will not feel able to act on an exit until this matter has been resolved because of the risk of legal challenge.
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The proposals being consulted on are that staff affected by the cap, because of their pension strain payments, may have one of the following options:
- Pay the difference to the pension scheme themselves
- Accept a reduced pension
- Defer retiring and accept an equivalent lump sum instead.
These are options not currently possible with the pension scheme regulations as they stand. GMB, along with associate Unions, is seeking clarification on how this will work in practice and it may well be that this conflict of regulations will be another area where a waiver would be appropriate.
Government guidance on how the waiver process can be used
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Despite the responses to the consultation highlighting several areas related to the waiver system, the original guidance published remains unchanged. Although the process for applying for a waiver will vary by sector, in each case it will require final sign off by a minister.
Note: In Local Government this will only be after a vote of the full council.
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There is currently very little guidance on what may be considered a good case for waiver with ‘genuine hardship’ being the only example given. GMB is seeking more detailed guidance on when a waiver might be applied.
Advice to our GMB London Region members
If agreements have already been reached for an exit settlement which may be affected by the cap, our advice is:
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ensure the exit agreement can be finalised prior to the implementation date of the Regulations which could be as soon as beginning of November.
and if this is not possible -
members need to be advised to refer their case to the full council for the waiver process to be considered.
GMB is continuing to explore avenues for reversing this unfair action and as more information is known concerning the wider exit payment reforms, we will advise accordingly in future bulletins.
Keith Williams, GMB London Region, Senior Organiser
