Public Sector Exit Payments Cap

You may be aware that for the last few years, the Government has been discussing capping the level of payments made to people leaving employment in the Public Sector. You may have heard this referred to as the “exit cap”.

We can confirm that the Government has now passed the legislation which caps certain exit payments to public sector employees and this is effective from 4 November 2020. 

These payments include redundancy payments and pension strain costs (i.e. the cost paid by the employer to the pension fund to allow early release of an employee’s pension).  Going forward this is most likely to be a consideration in restructuring programmes where people over 55 leave on the grounds of redundancy and a pension strain cost (i.e. the cost paid by the employer to the pension fund to allow early release of an employee’s pension) to the employer is incurred, as is most likely to incur for those employees in the Local Government Pension Scheme.

It’s important to note that pension strain costs arising from death in service, flexible retirement and ill health retirement payments are excluded from the cap.

As you can imagine this is quite a complicated area and we are still waiting for further advice and guidance, particularly in relation to how pensions will be affected by the cap and any possible impact in the event of restructuring programmes. As a result of this Pensions Services are currently unable to provide any estimates for ‘pension strain cost’ relating to employees leaving on the grounds of redundancy. We will keep you updated on any future developments.

If you have any questions, please contact your WES HR Advisor via weshradvice@warwickshire.gov.uk