19th February 2021

Last week the government announced that it will be revoking the Public Sector Exit Payments Regulations 2000, which place a £95,000 cap on public sector exit payments.

The Regulations, that aim to prevent public bodies from making excessive pay outs to departing employees, faced widespread criticism when they came into force in November 2020.

Following mounting pressure from Trade Unions, who argued that the Regulations would hit ordinary long-serving public servants earning relatively low salaries, and a robust legal challenge, the government has now decided to withdraw the Regulations, with Ministers stating that they are looking for new ways to tackle excessive pay-outs for high earners.

Unison’s general secretary, Christina McAnea, welcomed the decision and said: “It’s great the government has finally seen sense and stepped back from this damaging regulation that threatened to blight the retirement of millions of workers.

“Through no fault of their own, long-serving staff over the age of 55 and facing redundancy, would have been hit by the regulations. Because they’re obliged to take their pensions if they lose their jobs, when combined with redundancy payments the final amount could have exceeded the £95,000 cap.”

What the Regulations say:

The current £95,000 cap under the Regulations applies across the whole of the public sector to the total sum of payments made in ‘a relevant public sector exit’ in respect of the same person within a period of 28 consecutive days.

The cap applies to all payments relating to an exit, including the following payments:

• • redundancy
  • compensation
  • a severance package
  • a voluntary exit
  • pay in lieu of notice that exceeds one quarter of the employee’s annual salary
  • any payment to reduce or eliminate an actuarial reduction to a pension on early retirement or in respect to the cost to a pension scheme of such a reduction not being made (commonly known as ‘pension strain costs’) and
  • ‘any other payment, whether under a contract of employment or otherwise, in consequence of termination of employment or loss of office

Payments specifically excluded from the cap include:

• • death in service payments
  • injury compensation
  • pay in lieu of untaken holiday
  • payments made in compliance with a court order, and
  • pay in lieu of notice that does not exceed one quarter of an employee’s annual salary

What about those already impacted by the Regulations?

The full retrospective impact of the reversal in the Regulations remains unclear. The government has issued a guidance note to the Treasury Direction which states as follows:

“If you have been directly affected by the cap whilst it was in force, you should request from your former employer the amount you would have received had the cap not been in place by contacting your employer directly. Employers are encouraged to pay to any former employees to whom the cap was applied the additional sums that would have paid but for the cap.”

The use of the word encouraged does not necessarily suggest that repayment is mandatory. We will keep you updated as the situation develops.

If you would like further information on the Public Sector Exit Payments Regulations 2000 or any other employment law advice, please contact us on 0161 437 0013 or by email to kathryn.wilson@lawbydesign.co.uk.