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Cap on exit payments
[ch 11: page 406]There is to be an overall absolute cap of £95,000 on all termination payments (not limited to compulsory redundancy), through regulations to be made under a power in the Small Business Enterprise and Employment Act 2015 (SBEEA). The measures disregard negotiated agreements reached between employers and public sector unions following complex negotiations.
Under draft Public Sector Exit Payment Regulations 2016, the £95,000 cap is to include all compensation for compulsory and voluntary redundancy, early retirement payments, payments in lieu of notice, employer payments to a pension scheme to secure early receipt of a pension, compensation for early termination of fixed-term contracts, termination payments in shares and “any other payment made as a consequence of, in relation to, or conditional upon loss of employment, whether under a contract of employment or otherwise”.
All public sector employers are to be subject to the cap, except a small list of “public financial corporations” such as The Royal Bank of Scotland and the BBC. In the civil service, the cap reneges on on existing pay agreements negotiated with former Cabinet Office minister Francis Maude in 2010 on the Civil Service Compensation Scheme. The cap is scheduled to come into effect on or after 1 October 2016.
More cuts to contractual public sector redundancy pay threatened
In February 2016 the government announced a fresh consultation, this time on changing the formula used to calculate public sector redundancy pay, undoing established collective agreements negotiated across various different sectors. Consultation ended on 3 May 2016 and proposals included:
• Capping the maximum tariff for calculating redundancy payments at three weeks’ pay per year of service;
• Capping the maximum number of months’ salary that can be used to calculate redundancy payments at 15 months, no matter how long the individual has worked, (possibly 'slightly higher’ for some voluntary redundancies);
• Setting a salary cap for calculating redundancy payments, no matter what people earn. It could be set at “various levels”, and could align with the NHS salary cap of £80,000 introduced from April 2015;
• Cutting lump sum compensation to employees the closer they get to normal pension age, or to the target retirement age of the public sector pension scheme to which they belong (or could belong);
• Cutting employers’ pension top-up payments for employees who are offered early retirement instead of redundancy, removing access to any pension top-up payments, or increasing the minimum age at which employer-funded pension top-up is available.
The proposals target most exit payments, not only redundancy situations. They would not apply to service-related death or injury or ill-health retirement. It would be up to the Welsh and Scottish governments whether they decide to implement the proposed changes.