Further reform of public sector exit payments - what you need to know
Solicitor, Veale Wasbrough Vizards
In February 2016, the government opened a consultation seeking feedback on its proposals to reform exit payments in the public sector.
This week, the government confirms its intention to proceed with the proposals, which will apply to all current and future public sector workers.
The consultation document set out that the government's proposals for reform were underpinned by three key principles:
- Fairness - the level of compensation should be recognised as being fair and appropriate to taxpayers, who ultimately foot the bill.
- Modernity and flexibility - whilst employees should have a reasonable degree of certainty over their potential entitlements, flexibility is also required to respond to "changes in the structure and financing of the public sector, in the size and make-up of the various workforces and the broader fiscal environment".
- Greater consistency - to curb costs and ensure a reasonable degree of consistency between and within different workforces. The government highlight various disparities across different workforces which exist at present.
The government believes that the reforms could achieve cost savings in the region of £250 million per year and thereby assist in achieving sustainability, and protect jobs and public services.
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Whilst the government wishes to increase consistency, it has stated that it does not believe there is a case for a single compensation scheme to apply. Rather, it proposes a framework as follows:
- a maximum tariff for calculating exit payments at three weeks' pay per year of service.
- a ceiling of 15 months on the maximum number of months' salary that can be paid as a redundancy payment. Note that exit payments not classed as redundancy payments may be subject to a different maximum.
- a maximum salary on which an exit payment can be based. As a starting point, the government will expect this to align with the existing NHS scheme salary limit of £80,000.
- a taper on the amount of a lump sum an individual can receive as they get closer to normal retirement age of the pension scheme to which they belong, or could belong, in that employment.
- a limit or end to employer-funded early access to pension as an exit term such as limiting the amount of employer-funded top ups for early retirement, removing access to them and/or increasing the minimum age at which an employee is able to receive an employer-funded pension top up so it is more closely linked to the individual's normal retirement age in the relevant scheme.
The government has already legislated to introduce a cap of £95,000 on public sector exit payments and is taking action to recover exit payments from highly paid public sector workers who return to the public sector shortly after receiving pay outs. These measures are not yet in place but are unaffected by these proposed reforms.
Timescales and next steps
The government requires departments responsible for the workforces to design detailed proposals, within the above framework and principles as set out in the government's response document by the end of 2016. Departments will need to consult as appropriate with a view to the new schemes coming into force by June 2017.