Date posted: 10/11/2016


  • Pensions Leads and HR Managers
  • Internal Communications Managers


  • To note the changes to the efficiency compensation tariff

  • To note the new guidance attached which replaces PIN 40

  • To note that MyCSP are now authorised to make these payments to members of the nuvos and alpha schemes

  • To note the transitional arrangements


  • Immediate


Please see EPN584 for revised instructions

  1. Alongside the reforms to the CSCS tariffs, Cabinet Office has reviewed the tariff and guidance for cases of Inefficiency Compensation. The tariff for Inefficiency Compensation has been reformed to align with Voluntary Redundancy terms which have been announced in EPN 470. 
  2. New guidance has been produced which limits payments to staff with an underlying health condition. This guidance which you will find below replaces PIN 40 with immediate effect.
  3. The maximum level of compensation which may be payable if, the employing organisation decides that such compensation is appropriate, is set out in Section 11 of the Civil Service Compensation Scheme regulations.
  4. The revised CSCS offer included reforms to inefficiency compensation whereby the tariff for inefficiency would align with revised Voluntary Redundancy (VR) terms (I.e. a maximum if 18 months salary) as part of a package of reforms, which also limits its use to cases of underlying ill health and confirms eligibility for alpha and nuvos members.

The Guidance

  1. The guidance now refers to ‘Efficiency Departures’. This is the preferred title for these cases and payments under the reformed terms. Compensation must no longer be awarded in dismissals where there is no evidence that it is related to an underlying ill-health condition or conditions.
  2. In considering whether employees are to be compensated when dismissed on efficiency grounds the decisions about compensation should be based only on the employee’s health condition(s) and circumstances. The new guidance now includes a guide for calculating compensation. The scale is a sliding scale and any percentage figure from 0 to 100 per cent can be used.
  3. The new guidance now makes it clear that there is an obligation on employees to co-operate with measures to improve, make reasonable adjustments and keep in touch and that a failure to engage where possible should be expected to have a negative effect on any compensation awarded.

Changes to the tariff

  1. The inefficiency compensation tariff will align with the new voluntary redundancy terms. This will mean that the maximum (100%) compensation is calculated by using a tariff of 3 weeks per year of service, capped by 18 months’ salary.  The calculation should also include the use of the £24,500 underpin and will mean that employees above scheme pension age could receive compensation (capped at 6 months’ salary).


  1. This package of reforms will also formally bring members of the Nuvos and alpha pension scheme into the CSCS for inefficiency compensation purposes. This means that MyCSP will now be authorised to make these payments and re-charge the employer in the usual way. It will no longer be necessary for employers to make the payments on an Ex Gratia basis as has currently been the case.

Transitional Arrangements

  1. The new tariff for Efficiency departures will take effect immediately (i.e. from 9 November 2016) except for cases where an agreement to exit under inefficiency compensation has already been made before this date or a notice of dismissal was given before this date – but a final decision on payment has not yet been made.
  2. As a transitional measure, employers should use their judgement on a case by case basis as to whether ‘an agreement’ was reached before the new scheme came into effect. The expectation is that there may be some cases currently being assessed which can continue to use the unreformed tariff provided that the date of departure is on or before 31 December 2016.
  3. Any ‘Efficiency’ departure on or after 1 January 2017 regardless of when the case was initiated must use the reformed tariff for the compensation figure. However, The new guidance must be used immediately for all new ‘efficiency’ cases.
  4. Please note that you will need to inform MyCSP which of the terms you intend to use.

Further information

  1. This new guidance provides an opportunity for employers to break away from old precedents and use the introduction of the new approach to start afresh and not be bound by previous precedent. For example, we are aware that in the past some employers have always awarded 100% in cases of ill health regardless of the co-operation of the employee. Please judge each case on its merits. 
  2. It is for employers to judge on how or if they make the new guidance available to all staff. Clearly managers and employees will require access for advice on the process and it is helpful in clarifying the need for employees to take positive steps and engage with their employer. 
  3. Civil Service employers, you should be aware that changes have been made to Civil Service Management code (CSMC) to reflect these changes
  4. If you have any questions, please see EPN584


10 November 2016
Last updated:
24 April 2023