Legal Update: Public Sector Exit Payment Cap Removed

On 4 November 2020, the Restriction of Public Sector Exit Payments Regulations 2020 came into force which introduced a £95,000 cap on exit payments within the public sector, as outlined in more detail here. The cap, which was met with a lot of criticism, applied to a wide range of public bodies and a broad range of exit payments.

After only being in force for three months, the Government has now decided to revoke the regulations following a review which concluded that the cap may have ‘unintended consequences.’ We have outlined the impact of the removal of the regulations on public sector employers below.

Implications of the removal on public sector employers

The Government have published guidance for any individuals or public sector employers who were affected by the cap whilst it was in place which can be found here.

For individual employees who have had their exit payment capped as a result of the regulations, the Government had advised that they should request the amount they would have received from their former employer. Employers are further encouraged to pay any additional sums owed to the employee, had the cap not been in place.

Public sector employers should therefore be aware that they may soon receive such requests from affected employees and should therefore ensure they are prepared for how they will deal with such requests. Whilst there appears to be an implied expectation that employers will ‘make goo’ any additional payments, this is likely to depend on whether a settlement agreement is in place and / or if the relationship with the employee is continuing.

The cap on exit payments under the regulations included pension strain payments. The cap therefore had significant impacts on Local Government employees who are members of the LGPS as this provided individuals who are over 55 and who retired due to redundancy, with their full LGPS benefits immediately (more detail on this impact can be found here). As part of the reform on Local Government exit payments, a consultation and draft regulations were introduced. As a result of the £95,000 cap being revoked, the reform on exit payments is likely to be abandoned.

Questions do remain about the effect of the removal and repayment of additional funds for exits agreed through settlement agreements and also the financial impacts of having to repay large sums of money and if you have any questions about the removal of the regulations, please do get in contact with our Employment Team. For most employers however, the revocation of the £95,000 cap on exit payments is likely to come as a relief to many of those working within the public sector.