Following several delays, HMT released a response to the much debated £95k cap consultation yesterday and this afternoon the draft regulations were published. With around 600 responses to the consultation which closed in July 2019, perhaps the delay was inevitable. The draft regulations will come into force 21 days after both houses of parliament have approved them, but with summer recess starting today, it is unclear when this will be.
The exit payment cap (now more widely known as the £95k cap) was first publicised on 23 May 2015 when the Government announced its intention to end six figure exit payments for public sector workers, believing that these payments are not fair and neither do they 'offer value for money to the taxpayer who funds them'. Since then, the cap has been widely discussed in the period leading up to the consultation in April 2019.
"Considering the figure of £95k was suggested back in 2015, five years on it is surprising that the same cap would initially be used, although it is perhaps not surprising at all as the application of CPI in the interim period would no longer keep the cap under a six figure sum."
Below are some of the key takeaways:
- Despite there being a lot of concern raised, the early retirement strain payment will still be included in the £95k cap calculation. Their feeling is that this element is often the most costly element which is ultimately funded by the taxpayer so it is right that it is included. Instead, they expect that pension schemes, employment contracts, and compensation schemes will be amended to reflect the introduction of the cap.
- HMT have now acknowledged that the £95k figure should increase over time but in their response, there is no further detail about how this will be achieved. Considering the figure of £95k was suggested back in 2015, five years on it is surprising that the same cap would initially be used, although it is perhaps not surprising at all as the application of CPI in the interim period would no longer keep the cap under a six figure sum! With no allowance for inflationary increases more individuals will inevitably be affected as a result.
- The discretionary waiver system was welcomed for exceptional circumstances but there is no further detail about how this would work in practice
- There have been some changes to the public sector bodies that the Government has proposed to be within the scope of the cap but we do not think that this will change the previous intent in respect of any participating employers in the LGPS
Due to the current climate, we are aware that some participating employers in the LGPS are going through redundancy exercises so although the cap will not apply at the moment, with no certainty around the implementation date, we do not know for how long that will remain true.
We still await HMT Directions and guidance to answer some of the outstanding queries mentioned above.