As set out in our previous Alert the Restriction of Public Sector Exit Payments Regulations 2020 are intended to impose a £95,000 cap on exit payments to employees in the public sector. The Regulations had been approved by Parliament and we were just waiting for confirmation that they had been signed by the Minister to know when they would come into force. That has now happened, meaning the Regulations, and therefore the cap, will come into force on 4 November 2020.
We are still awaiting the final updated guidance and HM Treasury Directions to accompany the Regulations, which will cover issues such as the circumstances in which the cap may or must be relaxed or waived.
For all public sector employers the implementation of these Regulations is likely to create uncertainty, not least in relation the impact of the Regulations on exits already planned or in progress, the treatment of which is unclear at this stage.
However, for Councils, the timing of the implementation of the cap is particularly difficult. This is because the Ministry of Housing, Communities & Local Government (MHCLG)’s consultation on changes to the Local Government Pension Scheme (LGPS) rules, required to accommodate the cap, is ongoing and will not conclude until 9 November 2020, after the cap comes into effect, but pension strain costs must be counted within the cap. This will mean that Councils could be faced, in certain circumstances, with an obligation under the LGPS rules to make a pension strain payment which exceeds £95,000 to an LGPS Fund to cover the cost of early retirement on redundancy, but, at the same time, the Councils are prevented by the Exit Pay Cap Regulations from making that payment. We understand that the LGA and various other organisations are raising these concerns with MHCLG and HMT.