Reform: public sector exit payment charges

Published by Graeme Muir on

Terry Crossley contributed to the writing of this blog

A consultation on proposals to standardise and curtail exit payments throughout the public sector was announced by the Chief Secretary on 4 February; responses are invited by 3 May.

Policy Context

The Spending Review 2015 announced Government’s plans to continue to modernise terms and conditions of workers in the public sector to ensure fairness and sustainability in a challenging economic climate, and remove disparities in benefit generosity between the public and private sectors. This consultation builds on existing provisions to recover termination payments from some groups of high earners re-employed in the public sector within 12 months of being made redundant, and the introduction of an overall exit payments cap of £95,000 potentially from April 2016.

Consultation Proposals

The proposals aim to make future compensation terms fairer and more consistent generally with other sector workforces. Data in the consultation document shows that between 2010-11 and 2013-14, individual non-contractual redundancy pay in the private sector was £12,700 as compared with £15,800 in the public sector.

Potential Consequences

If implemented, the proposals would standardise and lead to a reduction in the costs of future exit payments in the public sector. The removal of the current variation between occupational workforce-related exit payment differentials will have potentially significant consequences for employers’ policies for their workforces and for workers’ options and choices. The measures reflect the post-Hutton public service pension schemes framework of more centrally prescribed, standardised pension benefits. Local and national workforce policies and agreements will therefore require significant adjustments, and the current LGPS automatic right to benefits at age 55 could require amendment if the proposals go ahead.

Comments are invited on the following options which all focus on the need to produce significant savings for employers:

  • a maximum, standardised  tariff for the calculation of all public sector exit payments to be set, with a maximum of 3 weeks for each year of service being suggested - a lower rate could apply if an employer wished
  • the maximum number of months’ salary to be used when calculating redundancy payments should be capped to 15 months - again, a lower rate could apply
  • set a maximum salary on which an exit payment can be based - the NHS limit of £80,000, introduced in 2015, is suggested as an option for consideration
  • tapering the compensation entitlements as recipients approach retirement age
  • either limit or remove entirely employer funded early access to pensions to reduce costs

Transitional Protections

The consultation document confirms a case for transitional protection will be considered where, for example, an exit has been agreed before new maxima are agreed.

Devolved Administrations

In respect of Devolved Administrations, and primary legislation was required to implement the reforms, Legislative Consent Motions would be sought to give Administrations the choice of including their workforces under the UK legislation.

Scope

Payments by employers in relation to injury, ill health or death in service remain outside the scope of the current proposals.

"The effect of a national standardised exit payment regime would see existing local agreements having to be reviewed, amended, and many replaced"

Assessment

Administering authorities are advised to consider these proposals from their perspectives as employers and to alert other LGPS employers of the importance of commenting by 3 May.

The consequences for local workforce policies and any subsequent management of change by employers are potentially significant. No actual implementation date is given and neither is it clear if primary legislation would be needed to give effect to the reforms. If it were, an April 2017 commencement might be likely. If the secondary legislation route is chosen, each existing arrangement would be revoked and a standardised one substituted. This could see change before April 2017 but runs a risk of delays, countering possible legal challenge from unions and possibly even industrial action. It does mean that a period of uncertainty looks likely and the promise of some transitional protection in the consultation document is hardly inspiring given the absence of any specific period of protection being considered. Clients may wish to consider a suitable period. Current arrangements though still apply and consultation on actual legislative proposals will take place.

The effect of a national standardised exit payment regime would see existing local agreements having to be reviewed, amended, and many replaced. Local workforce effects are likely to be significant. It is unlikely the essence of these proposals will change, given the austerity agenda and poor Settlement outcome for most authorities and the Treasury’s obvious wish to enforce economies in local expenditure. An assessment, therefore, of likely change before responding is recommended to gauge likely local impacts. This can usefully be fed into responses.

Trade unions will doubtless be aware nationally and regionally of the proposals and local liaison arrangements will be helpful in establishing reactions to be reflected in responses.

There will be implications for LGPS members. The consultation identifies the provision for redundant members aged 55 or more being entitled to immediate access to unreduced pensions. This may retained but only if the employee is within 5 years of their NPA. Similar provisions in other schemes will be amended, given the need to reduce employers’ costs. 

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