Treasury scraps £95,000 cap on public sector exit payments

Last year the government hastily implemented Regulations that imposed a £95,000 cap on the amount public sector bodies could pay to an employee on termination of their employment. This caused widespread consternation amongst local authorities and other organisations because of it's impact on pension strain payments (which we explained here). A number of organisations supported a judicial review into the lawfulness of the Regulations and that application was due to go ahead in the spring.

However, the government has now accepted that the cap 'may have had unintended consequences' and has said that it will revoke the Regulations. A mandatory HMRC Treasury Direction, in force from Friday 12 February, disapplies the cap until the Regulations are formally revoked. 

The government has also published new guidance to help individuals and employers understand what steps they need to take now. Individuals who left employment between 4 November 2020 and 12 February 2021 and have been affected by the cap are advised to:  'request from your former employer the amount you would have received had the cap not been in place by contacting your employer direct' and 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'.

Unison general secretary Christina McAnea described the cap as "damaging", saying it had "threatened to blight the retirement of millions of workers".

"Through no fault of their own, long-serving staff over the age of 55 and facing redundancy would have been hit by the regulation," she added.

"Because they're obliged to take their pensions if they lose their jobs, when combined with redundancy payments the final amount could have exceeded the £95,000 cap."”