EPN614 – The restriction of public sector exit payments to £95,000

Audience

  • Pensions leads
  • HR directors
  • HR managers
  • Internal communication managers/business partners
  • Exit/redundancy leads
  • All employers

Actions

  • The Restriction of Public Sector Exit Payments Regulations 2020 (“the Regulations”) were made by HM Treasury on 14 October 2020 and will impact the Civil Service Compensation Scheme. The Regulations came into force on 4 November 2020.
    ● The Regulations impose a cap of £95,000 on the value of exit payments.
    ● You should update any internal member communication documents issued to members to reflect the new legislation, to ensure members in scope for future exits are well informed.

Timing

Immediate

Detail

On 14 October 2020 the Restriction of Public Sector Exit Payments Regulations 2020 were made by HM Treasury. The Regulations came into force on 4 November 2020 and impose a cap of £95,000 on exit payments, including the following types of exit payment:

  1. Exit payments under the Civil Service Compensation Scheme (CSCS)
  2. Payment in lieu of notice (PILON) and Compensation in lieu of notice (CILON) which exceeds a quarter of the salary.

For the purposes of defining salary, the annual value of remuneration is taken into account including any allowances and any benefit in kind an individual is entitled to on their last day of service form part of that salary.

As the Scheme Administrator (MyCSP) will not be aware of any payments of PILON/CILON in excess of three months, it is an employer’s responsibility to ensure the exit payment cap is applied appropriately and inform members accordingly.

Under Compulsory Redundancy, members’ notice periods are six months (and can be longer in certain circumstances), so there may be instances where a portion of the PILON/CILON brings the total cost of the exit payment in excess of £95,000. If you come across an instance where this applies, please contact redundancyschemes@cabinetoffice.gov.uk

The Cabinet Office is currently in consultation with representative trade unions relating to the effect of the Regulations on the terms of the CSCS. Until such a time that this consultation has concluded and amendments have been made to the terms of the CSCS, organisations should continue to operate the existing process for seeking approval for any exit payments in excess of £95k from the Cabinet Office.

The impact on existing and upcoming exit schemes

  1. Under the terms of the CSCS, some members who are over minimum pension age and under normal pension age are eligible to bring their pension into payment early, using their compensation to buy out any early payment reduction that would otherwise apply. If this option is chosen and the cost of buying out the early payment reduction exceeds £95,000, the member may choose to fund any additional cost using their own funds. Members with a cost of buy out of early payment reduction exceeding the £95,000 cap who do not fund the additional cost with their own funds will be offered a cash exit payment of £95,000. If this payment is paid with other types of exit payments from the same employer, the total of the payments cannot exceed £95,000.
  1. Compensation payments made to cover annual leave entitlement are not included in the cap, as these are part of salary rather than exit payment.
  1. The regulations do not apply to:

(a) Any payment made to a member whose exit took place prior to 4 November 2020.

(b) the Scottish Parliamentary Corporate body or any authority which exercises functions devolved to Scotland, with the exception of the following which are covered by the Regulations: payments made by the Scottish Administration to non-Ministerial office holders and staff of the Scottish Administration.

(c) “relevant Welsh exit payments” made to the following office-holders:

i. member of Senedd Cymru/Welsh Parliament;

ii. the First Minister for Wales;

iii. Welsh Minister appointed under section 48 of the Government of Wales Act 2006;

iv. Counsel General to the Welsh Government;

v. Deputy Welsh Minister;

vi. member of a county council or a county borough council in Wales;

vii. member of a National Park Authority in Wales;

viii. member of a Fire and Rescue Authority in Wales.

(d) An authority which exercises functions devolved to Northern Ireland.

The power to relax restrictions in relation to exit payments may be exercised by a Minister of the Crown unless the payment is:

a. a relevant Welsh exit payment (these are not covered by the Regulations as explained above)

b. made by a devolved Welsh authority, when it is exercised by the Welsh Ministers

c. made by a relevant Scottish authority with the exception of certain payments made by the Scottish Administration

The Minister of the Crown’s power to relax restrictions including where that power has been delegated can only be exercised either in compliance with the conditions set out in HM Treasury Directions or with the consent of HM Treasury, with the exception of payments made by a devolved Welsh authority.

  1. New Fair Deal employers offer similar schemes to the Civil Service Compensation Scheme. The cap only applies to those bodies listed in the schedule to the Exit Regulations. If a New Fair Deal body is not listed in the schedule the cap does not apply to them and if making a voluntary or compulsory redundancy will have to pay the full, uncapped, exit entitlement.
  1. HM Treasury Directions set out circumstances where the power to relax restrictions must be exercised (“mandatory cases”) and may be exercised (“discretionary cases”).  The mandatory circumstances are as follows and must be exercised by a Minister of the Crown (which for the purposes of the CSCS would be the Minister for the Cabinet Office), the Ministers of the relevant devolved administration or the relevant Minister:

(a) where an obligation to pay an exit payment arises as a result of the 1981 or 2006 Transfer of Undertakings (Protection of Employment) Regulations or the EU Acquired Rights Directive (TUPE);

(b) where a payment is made to avoid employment tribunal litigation in relation to a complaint that someone has suffered a detriment or been dismissed as a result of whistleblowing or being involved in health and safety activities;

(c) where a payment is made to avoid employment tribunal litigation in relation to a complaint of discrimination under the Equality Act 2010.

Discretionary relaxation powers require approval from both the Minister for the Cabinet Office and HMT and can be exercised:

(d)  where there are compassionate grounds owing to genuine undue hardship. The circumstances that may be considered are not limited to the employee’s own circumstances, and it may be appropriate to consider the position of family members. For example, where an individual is exiting the workforce and is not able to seek re-employment due to caring responsibilities;

(e)  where not exercising the power would significantly inhibit workforce reform;

(f)  where a written agreement to exit was entered into before the regulations came into force (4th November 2020) with a view to the exit taking place before that date, but the exit was delayed until after that date and the delay was not attributable to the employee or office holder concerned.

  1. Where the exit payment is made by a devolved Welsh authority, the power to relax restrictions is conferred upon Welsh Ministers.

Further information

  1. The website is currently being updated with revised employer guidance and support materials including:

(a)  The Employer Pension Guide, including Annex 6F

(b)  What to Expect Guide

(c)  FAQs

Contacts

If you require any further assistance on the content of this EPN, please contact: communications@mycsp.co.uk.

If you have a question about the distribution of EPNs, or would like to receive them in a different format, please contact EPN@MyCSP.co.uk.

You can find electronic copies of the Employer Pension Guide, all current EPNs and forms in the Employer section of the Civil Service Pensions website.

This notice is for employers and should not be issued to scheme members.

Members can find information about their pension by visiting the member's section.

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