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Insight

End of six-figure exit sums for public sector, spell draft regulations

10/11/2015
The Government has given the go-ahead to its proposed £95,000 public sector exit payments cap in its consultation response. Last week, it published the draft Public Sector Exit Payment Regulations

The Government has given the go-ahead to its proposed £95,000 public sector exit payments cap in its consultation response. Last week, it published the draft Public Sector Exit Payment Regulations 2016, making the cap a more tangible reality. The cap, which will limit the total aggregate value of exit payments made to (most) public sector workers, will be part of the forthcoming Enterprise Bill 2015-16.

The cap (initially set at £95k but subject to change) will include payments for: loss of employment generally, voluntary or compulsory redundancy, payments in lieu of notice (PILONs) and unreduced pension access on early retirement, amongst others. Including PILONs will mean that the cap is not evaded by excessively long notice periods, paid in addition to exit payments. It remains to be seen how this legislation will interact with the Civil Service Compensation Scheme, though it is likely that payments under this scheme will fall within the cap.

The draft Regulations do contain exceptions. Payments made in respect of employee death or serious injury from accident, injury or illness, accrued but untaken holiday pay, bonuses due, damages from court litigation and protective payments under TUPE are not subject to the cap. And the Regulations do contain powers for restrictions to be relaxed in exceptional circumstances.

Most public bodies in Great Britain will fall under the cap, though not publicly owned financial bodies and public broadcasters, such as the BBC. Even then, the Government expects those bodies to put in place their own equivalent caps to coincide with the statutory one.

The Regulations are still in draft form and subject to debate in Parliament so could change yet. But this news, along with other Government proposals to recover exit payments from public sector high earners leaving a public sector body and rejoining another within 12 months, does not bode well for those expecting a hefty pat on the back for their public sector work. And it raises a question: will private sector shareholders follow suit in pushing for capped exit payments?

If you would like to discuss how best to structure your organisation's severance packages with us, please do not hesitate to contact a member of our Employment and Pensions team.

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