Reforms to public sector pay: summary current position

There have been several further developments on proposed public sector pay reform since our last blog on the topic was published.

£95K Exit Pay Cap Clause in the Enterprise Bill

The Enterprise Bill was recently debated at Public Committee. During the debate, Anna Soubry (Minister for Small Business) indicated that the regulations implementing the cap will be in force from “October 2016 at the very earliest”. When concerns were raised about the impact of the pay cap on employer pension contributions, Ms Souby referenced the amendments to be made to the LGPS regulations to allow for the payment of a reduced pension where the pension top-up by the employer would mean the redundancy payment exceeds £95,000. The amendment will allow for a member, instead of taking a reduced pension earlier, to opt to defer payment of their pension and take an unreduced pension at normal pension age. This is designed to ensure that the scheme does not conflict with the requirements of the cap.

Ms Souby also indicated that guidance accompanying the regulations will set down the criteria that Ministers, or those who have been delegated the responsibility, must consider in decisions to relax the cap.

The Bill will next be considered at Report Stage, Legislative Grand Committee and Third Reading over two days on 8 and 9 March.

Consultation on reforms to public sector exit payments – Closes 3 May 2016

In the Spending Review and Autumn Statement 2015, the government announced their intention to modernise the terms and conditions of public sector workers by introducing targeted reforms. HM Treasury has launched a consultation on reform of all major public sector compensation provision. The proposals include:

  1. Setting the maximum tariff for calculating exit payments at three weeks’ pay per year of service.
  2. Capping the maximum number of months’ salary that can be used when calculating redundancy payments.
  3. Setting a maximum salary for the calculation of exit payments to £80,000 in line with the NHS redundancy scheme’s salary cap of £80,000.
  4. Enabling the amount of lump sum compensation an individual is entitled to receive to be tapered as they get close to the normal pension age or target retirement age of the pension scheme to which they belong, or could belong, in that employment.
  5. Reducing the cost of employer-funded pension top up payments, such as limiting the amount of employer funded top ups for early retirement, or removing access to them, and / or increasing the minimum age at which an employee is able to receive an employer funded pension top up.
  6. Requiring employer-funded early access to pension to be limited or ended, through one or more of a range of measures that would considerably reduce such costs, such as:
    1. Capping 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;
    2. Removing the ability of employers to make such top ups altogether;
    3. Increasing the minimum age at which an employee is able to receive an employer funded pension top up, so that this minimum age is linked more closely with the individual’s Normal Pension Age in the scheme in which they are currently accruing pension benefits or to which they would be entitled to belong if they were accruing benefits.

The timeline for implementation of the reforms has not yet been set out.

Public Sector exit payment recovery regulations: £80K Clawback

The draft Repayment of Public Sector Exit Payments Regulations 2016 will allow public sector organisations to clawback redundancy payments of £80,000 or more where the individual returns to a public sector post soon after.

The two proposed obligations introduced will:

  1. Require the individual to notify their new and previous employer where they propose to return to the public sector after they have received a public sector exit payment within the previous 12 months.
  2. Require old employers to make arrangements with individuals where exit payments are due to be recovered.

Housing Associations have been granted an exemption from the recovery policy. The rationale for this is that it is the government’s intention to take steps to ensure they can be reclassified to the private sector. HM Treasury are analysing the consultation feedback.

Whether the same rationale will be applied to revised drafts of the other public sector pay related regulations remains to be seen. Following parliamentary scrutiny, the clawback regulations are scheduled to take effect from April 2016.

Simplification of the tax and National Insurance treatment of termination payments

There has been no further movement following this consultation period coming to an end on 16 October 2015. HM Revenue and Customs are analysing the feedback.

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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