Exit payments for public sector workers – The Current Position

There have been several further developments relating to the proposed legislation and regulations on public sector exit payments since our last blog on the subject was published in November.

On 7 December 2015, the Northern Ireland Assembly refused to endorse the provisions relating to a £95,000 cap on public sector exit payments.

On 20 December 2015, HM Treasury launched another consultation on draft regulations allowing for the recovery of exit payments when an individual returns to a similar role.

Public Sector Exit Payment Cap

As detailed in the Legislative Consent Memorandum published by the NI Assembly in October 2015, responsibility for public service pension and compensation arrangements has been devolved to Northern Ireland. However, a long standing convention of parity exists between Northern Ireland and the rest of the UK in this area. Normally, Northern Ireland schemes implement changes in pension policy as a consequence of policy decisions taken by central government and in line with changes made for the equivalent schemes in Great Britain rather than to develop or formulate policy separately. A Legislative Consent Motion was deemed to be the most effective means achieving a consistent application of the public exit sector pay cap in the UK thereby ensuring public servants in Northern Ireland were not treated more favourably than the rest of the public sector.

Following this, Mr David Murphy, the Chief Executive of the Northern Ireland Local Government Officers’ Superannuation Committee (the Pension Board for the LGPS Northern Ireland), emailed the NI Assembly Finance and Personnel Committee raising concerns about the impact a cap would have on public sector employers who are members of the LGPS. Where employees in the LGPS are made redundant and are aged 55 or over, their employer is required to pay the cost of early receipt of their pension benefits. It is proposed that this cost is excluded from the £95,000 cap. In his email, he provided a very helpful illustrative example of the likely impact of the legislation:

“A female, aged 55 with 35 years’ service earning £27,000 could cause an employer to bear a cost of £95000.99 and therefore would breach the Cap in its own right before adding on any redundancy payment also received..”

He very effectively showed how the proposed cap would inhibit affected organisations’ plans to reduce staff numbers in the foreseeable future.

Mr Murphy recommended excluding the pension scheme redundancy costs from the cap thereby reducing the limitations placed on employers and removing the potential of challenges on Equality grounds. Making such amendments was outside of the remit of the NI Assembly under the Legislative Consent Motion procedure.

As such, the public sector exit pay cap has not been approved in Northern Ireland. What remains to be seen is whether or not this will lead to an amendment of the regulations. It is currently proposed that they will be implemented in England and Wales by April 2016.

At present, these regulations apply to public sector bodies as referred to in the regulations. As we explained in our earlier briefing, following the recent reclassification of housing associations by the Office of National Statistics, as the regulations are currently drafted this would include housing associations. However, DCLG has confirmed that it is their intention to exclude them from its scope. Notwithstanding this, it does set a benchmark against which the regulators of housing associations will assess the reasonableness of any severance payments made.

Public Sector Exit Payment Recovery Regulations

Separately, HM Treasury launched a further consultation on the draft repayment of Public Sector Exit Payments Regulations 2016. This consultation closes on 25 January 2016. They make various amendments to the earlier proposals including expressly excluding housing associations from its scope.

We will keep you up to date with further developments.

For advice on the potential impact of the draft legislation and regulations on your organisation, please contact a member of the Devonshires Employment Team.

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