Parliamentary Progress – Public Sector Exit Payments

The Enterprise Bill is making progress through Parliament and was considered at Public Committee on 11 February 2016.

Anna Soubry (Minister for Small Business) and Greg Hands (Chief Secretary to the Treasury of the Conservative Government) have provided guidance on the government’s position concerning the range of payments to be included when calculating the proposed exit payments cap.

According to Mr Hands’ response to a series of Parliamentary Questions put to him by Kevin Breenan (Shadow Minister for Trade, Investment, and Intellectual Property), the exit payment cap will not affect any pension a person has earned through their years of service or have any impact on accrued pension rights or pension lump sum entitlements.

Early retirements relating to ill health are outside the scope of the cap and will not be affected. Accordingly if an employee in the LGPS is eligible for ill-health retirement and there is a strain cost payable by the employer, that cost will not be included in the exit cap calculation. Additionally, any payments directed by a Court or Tribunal will not be included in the scope of the cap.

Mr Hands confirmed that it will capture strain costs made by the employer to fund early access to an unreduced or partially reduced pension on the grounds of redundancy, business efficiency or where the member retires early with the scheme employer’s consent. The Government is of the view that such costs are ultimately funded by the tax payer and so should therefore be limited. He does not address the fact that the employer does not choose to make capital contributions but that employees are entitled to early receipt of pension benefits.

Exits on compassionate grounds are not such a clearly defined concept as exits related to ill health or redundancy. The Government’s view is that there is a large degree of employer discretion on the terms and payments of such exits. There will be discretion available to relax the cap in individual cases, subject to relevant Ministerial or local council approval.

Anna Soubry has confirmed that there are a very small number of workers on £25,000 approximately whose length of service may be 30 years or more who could be caught by the public sector exit pay cap, but that those are extremely rare conditions. HM Treasury will look at the figures to assess the true impact and bring the evidence to Committee.

Unison has a different view and believes that the proposals will affect many low to moderate paid employees in the public sector. The Union has called for a number of exemptions to the proposals which include pension strain costs being excluded completely, an exemption for individuals earning less than £29,000 per annum and confirmation that settlement achieved via Early Conciliation will also be excluded from the cap.

Treasury guidance and directions will be forthcoming in due course and should serve to provide further clarity on the application of the exit pay cap.

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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