On 4 November 2020, The Restriction of Public Sector Exit Payments Regulations 2020 SI 2020/1122 (Regulations), implemented a cap of £95,000 on exit payments for public sector authorities as well as those listed in the Regulations Schedule.

Less than 3 months later, the government have revoked the provisions.

Current position

The aim of the Regulations was to prevent excessive payments being paid to departing employees in the public sector. After a review of the cap was undertaken, the government have concluded  that the imposition of the cap has resulted in unintended consequences. They effectively found that long serving, middle ranking individuals were adversely affected, not just high flying executives.  This was because the amount of any redundancy payment along with any pension shortfall payment would quite often exceed this figure. It was unclear how the payment was to be divided in such circumstances and the risk of litigation was substantial. Therefore, the government have decided that the Regulations should be revoked.

An HM Treasury Direction has been introduced which will disapply the cap until the Regulations are formally revoked.

What about the employees that have been affected by the cap whilst the cap was in force?

According to government guidance, employees affected by the cap should contact their former employers and directly request to be paid what they would have been paid had the cap not been in place.

What should former employers do in light of the withdrawal of the Regulations?

According to government guidance, employers are now encouraged to pay additional sums to any former employee affected, if the employee:

  • had an exit date between 4th November 2020 and 12th February 2021 ; and
  • had the cap applied to their situation.

If the above applies,  the former employer should pay the former employee the additional sums that would have been paid to them had the cap not been applied in the first place.  Employers should note that HM Treasury have an expectation that the former employers will do this.

For further information, please visit:

https://www.gov.uk/government/publications/guidance-on-public-sector-exit-payments

If you would like any further information, please contact Sabrina Rahman on 0114 228 3262 or sabrina.rahman@luptonfawcett.law or another member of the employment law team.

Please note this information is provided by way of example and may not be complete and is certainly not intended to constitute legal advice. You should take bespoke advice for your circumstances.

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