Public Sector Exit Payments Scrapped

Published: February 15th, 2021

7 min read

The Treasury has recently announced that long proposed cap on Public Sector Exit Payments (the Cap) which came into force on 4th November 2020 has been withdrawn effective from 12th February 2021 due to "unforeseen circumstances". Therefore any exit payments made after 12th February 2021 should no longer be subject to any Cap.

The Cap was designed to limit payments for certain public sector employers to no more than £95,000. The Cap applied to a number of payments including those made by way of redundancy, ex-gratia payments or payment in lieu of notice, payments to settle Tribunal proceedings, payments made in compensation for loss of office and payments made in respect of early release of an employee's pension (commonly known as pension strain).

When the Cap was introduced the inclusion of the pension strain in the capped payments appeared to be the most controversial element of the Cap as these pension strain sums can often be significant and could result in the payment being capped even for public sector employees who were not on large salaries. The Cap had been challenged by several Trade Unions via Judicial Review in a case that was due to be heard in March and the expected outcome of this case may be the "unforeseen circumstances" cited in the Treasury announcement.

The Treasury has stated that it is open to employers to pay any employees who missed out on additional sums as a result of the Cap being applied in their circumstances. It is important to note as well that whilst the guidance states it is the expectation of the Treasury that employers make this payment, at this time there is no strict requirement for employers to make this payment.

One area that could cause some issues is any employee who left under a Settlement Agreement and whilst the Cap might have not been formally applied, its impact may have impacted on the negotiation of the sums involved. In these cases as it was a negotiated settlement and the Cap was never formally applied, it may be hard for employees to say they should be entitled to additional sums unless there are specific clauses within the Settlement Agreement dealing with this situation.

For employers who were covered by the Cap our advice would be to carry out the following steps:

  • Carry out an audit of all staff who received exit payments between 4th November 2020 and 12th February 2021 and determine if any staff if not for the Cap would have been entitled to additional payments.

  • Come to a decision whether you as an organisation are going to make the additional payments. If you choose not to you may face significant challenges from trade unions and affected employees.

  • Consider whether you have changed any of your policies or procedures as a result of the Cap. If you have you may choose to reverse any changes you have made to your policies as a result of the Cap.

  • Consider any impending exits and whether the removal of the Cap will affect the payments due to these employees.

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