Ever since 2015 the government has been considering capping public sector exit payments. Following an initial consultation it introduced sections 153A to C to the Small Business, Enterprise and Employment Act 2015 (via the Enterprise Act 2016) enabling the Treasury to make regulations imposing a £95,000 cap on public sector exit payments.
In April 2019 the government issued a consultation on the draft Restriction of Public Sector Exit Payments Regulations 2019 and associated draft guidance. A response to the consultation was published on 21 July 2020 along with the draft Restriction of Public Sector Exit Payments Regulations 2020. The government has made it clear that it does not intend to change the level of the £95,000 cap at this stage, but that it will be kept under review.
Restrictions on exit payments
The Regulations provide that a "relevant authority" must not make an "exit payment" to a person which exceeds the "exit payment cap" in respect of a "relevant public sector exit". A "relevant authority" is either a body listed in the Schedule to the draft Regulations, or a body responsible for determining the level of remuneration payable to the holder of any of the public offices listed in Part 2 of the Schedule.
A "relevant public sector exit" means a situation where either an employee leaves the employment of a relevant authority, or an office holder leaves an office. Where the relevant public sector exits occur in respect of the same person within any period of 28 consecutive days, the total amount of the exit payments made to that person in respect of those exits must not exceed the exit payment cap.
What are exit payments?
Payments deemed to be exit payments under the draft Regulations include the following:
- Redundancy payments (with the exception of statutory redundancy payment entitlements where the £95,000 cap will not be applied)
- Payments to reduce or eliminate an actuarial reduction to a pension on early retirement or in respect of the cost to a pension scheme of such a reduction not being made.
- Payments pursuant to an award of compensation under the ACAS arbitration scheme or a settlement or conciliation agreement.
- Severance or ex gratia payments.
- Payments in the form of shares or share options.
- Payments on voluntary exit.
- Any contractual payment in lieu of notice (though only if it exceeds one quarter of the individual's salary).
Exempt payments
The draft Regulations state that payments in respect of death in service, and payments made in respect of incapacity as a result of accident, injury or illness will not constitute exit payments. Other exempt payments include payments in respect of annual leave due under a contract of employment but not taken, payments made in compliance with an order of a court or tribunal, and any contractual payment in lieu of notice that does not exceed one-quarter of the relevant person's salary.
Information requirements
The Regulations stipulate that those leaving a public sector employment or office who are entitled to receive an exit payment must provide certain information to the relevant authorities by whom they are employed, or who are responsible for remunerating them in respect of their public office. This information includes the fact that they are entitled to an exit payment, the type of exit payment, the date on which they left the employment or office to which the payment relates, and the identity of the authority that is obliged to make the payment.
