Fri 26 Feb 2021

Cap on public sector exit payments requiring UK Government approval revoked

The regulations, 5 years in the making, were in force for a little over 3 months

In September 2019, the Scottish Government introduced a change to the Scottish Public Finance Manual ("SPFM") introducing a £95,000 cap on exit payments made by devolved bodies.  At the time similar rules did not apply to Scottish public sector bodies where the employment terms required UK Government approval. However, that changed on 4 November 2020 when the Restriction of Public Sector Exit Payments Regulations 2020 ("the Regulations") were introduced. The Regulations placed a similar £95,000 cap on exit payments that could be paid by certain listed public authorities.  In Scotland, the Regulations applied only to listed Scottish public bodies where employment terms were subject to UK Government approval. 

However, the UK Government has announced that the Regulations are to be revoked.  According to the UK Government, the decision follows an extensive review of the cap which found its application may have had unintended consequences, although it does not specify what those are.  The Regulations were though the subject of a number of judicial review applications arising from concerns around the Regulations clashing with the requirements of the Local Government Pension Scheme ("LGPS").  One of the groups bringing a judicial review asserted that there were "clear procedural flaws" in bringing the Regulations forward and also substantive issues as to the basis upon which they had been made.  The clash with the LGPS would mean significant amounts of workers aged 55 and over would be adversely affected if made redundant.

HM Treasury has published a Direction which came into force on 12 February that dis-applies the cap until the Regulations are revoked.  Guidance has also been issued for both individuals and public sector authorities who were affected by the cap while it was in place.  Affected individuals should contact their employer directly and request from them the amount they would have received had the cap not been in place.  The guidance for public sector authorities is that they are "encouraged" to pay affected individuals the additional sums that would have been paid but for the cap, and that it is "HM Treasury's expectation" that they will do so.

The cap introduced by the Scottish Government via the SPFM for devolved Scottish public authorities expressly excludes both pension benefits to which the employee is already entitled and mandatory payments made by the employer to the pension scheme to either top up or underwrite the actuarial reduction to allow early access to pension benefits. This therefore appears to avoid the primary issue that led to the judicial review applications that plagued the Regulations brought in by the UK Government. 

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