19 February 2021 | Comment | Article by Emily Thomas

Public Sector Exit Payment Cap Revoked

On 12 February 2021, HMRC announced that the Public Sector Exit Payment Regulations 2020 (the Regulations) are to be revoked. The Regulations, which placed a cap of £95,000 on exit payments made to employees departing from public bodies, have faced scrutiny since they came into force on 4 November 2020.

Commentators had raised various concerns about the scope of the Regulations and there have been various legal challenges to the regulations from local government organisations and trade unions. The inclusion of the pension strain within the cap, in particular, had raised concern as it was claimed this would have had a detrimental impact on public sector employees who are not necessarily the ‘highest earners’ which the Regulations sought to target.

The government seems to have now acknowledged the concerns raised about the flaws in the Regulations and has issued a Treasury Direction to suspend them whilst the formal revocation process takes place. The government has also published Guidance Notes which states the following:

"2.1 If you have been directly affected by the cap whilst it was in force, you should request from your former employer the amount you would have received had the cap not been in place by contacting your employer directly. Employers are encouraged to pay to any former employees to whom the cap was applied the additional sums that would have paid but for the cap."

The Guidance Note also makes it clear that it is an expectation of HMRC that employers will pay the additional sums outlined above to employees who exited between 4 November 2020 and 12 February 2021.  

The Guidance Note can be accessed by clicking here.

The Local Government Pension Scheme Regulations had been expected to be amended this year to bring them into line with the Regulations. The consultation in relation to these completed at the end of last year so it remains to be seen whether any changes will be taken forward in light of the revocation of the Regulations, as well as whether any future changes are proposed to the Regulations themselves with a view to reintroducing them in some amended form.

For further advice on any of the changes outlined above please contact our Employment and HR Services team. 

Disclaimer: The information on the Hugh James website is for general information only and reflects the position at the date of publication. It does not constitute legal advice and should not be treated as such. If you would like to ensure the commentary reflects current legislation, case law or best practice, please contact the blog author.

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