Date posted: 01/04/2011
Audience: This Notice will be of particular interest to:
- HR staff dealing with early departure exercises
- Replace the calculators issued with EPN293 with the updated calculators issued with this EPN
- If you are in the process of running an early departure scheme and have put the relevant member calculator on your intranet, please replace with the updated version with the form of words for members given below
- Note the updates to the CSCS Guidance and the Member’s Choice forms
- Note that inefficiency compensation payments have been temporarily suspended
- All compensation payments made under the CSCS to those who have at least 2 years qualifying service, must be at least equal to what would have been payable under the Statutory Redundancy provisions. The limit on a week’s pay for calculating benefits under the Statutory Redundancy Scheme increased from £380 to £400 on 1 February 2011 which makes the new limit for the annual rate of pay £20,800. The increase could mean that some people receive a top up to their lump sum compensation payment if they have over 20 years continuous service and receive a salary of less than £24,000 and are aged over 59 years 11.5 months on their last day of service.
- If you are in the process of running an early departure scheme and have already put the relevant calculator on your intranet, you should replace it with the new version with the note below which also includes a sentence regarding the tax position (see paragraph 3). You may also wish to alert staff who will have already used the calculator.
All payments made under Voluntary exit and Voluntary and Compulsory Redundancy must be more than you would receive under the Statutory Redundancy Scheme if it applied. The weekly limit to calculate Statutory Redundancy increased on 1 February 2011. This means that your compensation payment may be topped up to the statutory redundancy amount. This may affect your lump sum compensation payment if:-
- you have more than 20 years continuous service
- your salary is under £24,000
- You are over scheme pension age or
- You have less than 16 days to go to scheme pension age
If these criteria apply please run your figures through the calculator again filling in the continuous service field for statutory redundancy. If you have any problems please let us know. The first £30,000 of your compensation payment will be tax free under the current tax rule. Above £30,000, tax will be payable in line with the PAYE tax bands.
- In EPN297 we explained that HMRC have changed the way payments made after an employee has left an employment are taxed. This will affect any compensation lump sum paid under voluntary exit, voluntary redundancy and compulsory redundancy. As you are aware the first £30,000 of a compensation payment is tax free and in the past any compensation over £30,000 was taxed at basic rate by Capita Hartshead. If any further tax was due at the higher rate it was done by self assessment at the end of the tax year.
From the 6 April 2011 tax after the first £30,000 will be deducted in line with the PAYE tax bands. This will mean that individuals who are liable at the higher and additional tax rates will pay tax at that amount when they receive their compensation payment from Capita Hartshead. HMRC have processes in that will for the majority of individuals, allow for any over deduction of tax to be repaid in-year. Capita Hartshead will provide details of the leaver’s compensation lump sum payment, amount of tax deducted and the compensation lump sum net of tax. This information will be printed on a slip of paper that individuals can then forward to their tax office to claim back any over deducted tax. If the compensation payment is used to buy-out the reduction to the pension for early payment, it is only any remaining compensation lump sum over £30,000, that will be subject to tax.
- We have taken this opportunity to revise the CSCS Guidance for Employers (now Version 2 April 2011) (see Annex A), taking account of comments and questions that have been asked by both Pension Service Centres and employers. All additions to the guidance are sidelined for ease of reference. Please note the additional information on Fixed Term Appointments (FTA) in paragraph 6k of the guidance explaining what and when compensation is payable at the end and within the term of the contract and the process you will need to follow to obtain quotes from your Pension Service Centre.
- Some employers have asked for sight of the CSCS member letters but because they are PenServer letters they contain field codes and conditional statements which make them very difficult to read. We have, therefore, attached the compensation choice forms at Annex B which we hope will help you understand the member choices under the terms of your early departure exercise.
- We had hoped to issue further detailed guidance on what compensation benefits are payable where there has been a TUPE transfer but we have decided not to delay this EPN while we seek further clarification from Scheme Management Executive. Guidance in EPN104 is still relevant in cases where a member has had a TUPE transfer into the PCSPS. However where there has been a TUPE ‘sandwich’ i.e. a person has had a TUPE transfer out of the PCSPS to an outside organisation and later had a TUPE transfer back into a PCSPS employer different rules may apply depending on the date of the TUPE transfers and what contractual rights they have. If you have an early leaver who is in this situation and you need advice before the guidance is issued, please contact the employer helpdesk giving full details of the case.
- To enable you to estimate costs of benefits payable under the new CSCS arrangements we have produced a ready reckoner (at Annex C) which we will add to Section 6 of the Employer Pension Guide. This will enable you to estimate the cost of the lump sum compensation payment and will give you an estimate of how much it will cost to buy out the reduction to an individual’s pension benefits.
- It is Cabinet Office’s understanding that the PCS is suggesting to its members that they return a pro-forma with their acceptance of any compensation offer, making clear that they are not giving up any rights in the future to sue for damages if the courts rule that the changes to the scheme were in breach of the Human Rights Act. In the vast majority of cases the effect of such a pro-forma is of little value. Unless the individual specifically waived their future rights to sue for damages the acceptance, or refusal, of a compensation payment has no impact on their ability to pursue legal action at a later date. Employers therefore need take no further action if such pro-formas are returned to them.
The sole exception is where a compromise agreement, specifically including an agreement that there would be no future legal action on this point by the member of staff, has been reached. The pro-forma and the agreement will obviously be in conflict and either the pro-forma or the offer of the compromise agreement must therefore be withdrawn.
- We have been informed by the Cabinet Office that the caps on compensation imposed by the Superannuation Act 2010 apply to any compensation paid under the Civil Service Compensation Scheme in respect of inefficiency departures. This means that such compensation will be capped at 12 months’ pay for anyone who was given notice of dismissal on the grounds of inefficiency on or after 16 December 2010. Further guidance will be issued shortly but, in the meantime, we have asked your pension Service Centre to stop processing any inefficiency departures where:-
- Notice of dismissal was given on or after 16 December 2010, and
- Identify any cases where inefficiency compensation has already been paid to such departures.A further EPN will be issued shortly.
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