Exit Payment Reforms

The Legislative process to implement the Exit Payment Reforms, better known as the “£95k cap”, was completed this week and the regulations (1), and hence “ the cap” take effect on 4 November 2020.

As such, from 4 November 2020 authorities who are subject to the new regulations will be prohibited from making exit payments in excess of £95,000. The regulations make provision for relaxation of this cap by the full councils of local authorities in England and fire and rescue authorities in England as applicable and in respect of the Greater London Authority by the London Assembly but this is subject to compliance with any directions from the Treasury or consent from the Treasury. The Welsh Ministers have power to relax the cap in respect of exit payments by devolved Welsh authorities.

The bodies to which the cap on exit payments applies are identified in a schedule to the regulations and the regulations set out details of how the regulations will work in practice. These include details of the types of payments which will be affected by the regulations and those which will be exempt, as well as provision for the situation where the same person leaves the employment of a number of different public sector employers within a period of 28 consecutive days.

The regulations include an obligation for a relevant authority who is prevented by the regulations from making a payment to reduce or eliminate an actuarial reduction in a pension on early retirement to make an alternative type of payment. However, the legislative changes needed to amend the Local Government Pension Scheme rules, required to accommodate the £95k cap, have not yet been made and consultation is not due to end until after the cap comes into effect. This is a major concern for employers who are faced with having to breach one of the conflicting legal obligations to comply with the other!

As yet neither the guidance nor directions to accompany the new regulations have been published. This means there is no further information regarding some of the other areas of uncertainty such as the discretionary relaxation process or provision for current exits in progress.

Employers will have made some preparations ahead of the implementation date but will now need to ensure that policies are revised and approved, commitments yet to be entered into and executed will be compliant under the new regime, and how they will deal with exits which would otherwise involve pension strain costs that exceed the cap.

As soon as the guidance and directions are available, we will issue a detailed update. If you have any questions please feel free to contact us.

The new regulations can be accessed at: https://www.legislation.gov.uk/uksi/2020/1122/introduction/made

(1) The Restriction of Public Sector Exit Payments Regulations 2020