On 7th September 2020, the Ministry of Housing, Communities and Local Government launched a consultation on proposals to reform the ‘exit payment’ terms, including both redundancy compensation pay and early access to pensions, for local government workers. These exit payments include all forms of compensation such as redundancy payments, pension top-ups, compromise agreements and special severance payments.
The key proposals to reform redundancy payments in local government are as follows:
A maximum tariff for calculating exit payments of three weeks’ pay per year of service. However, employers could choose to apply tariff rates below these limits
A ceiling of 15 months (66 weeks) on the maximum number of months’ or weeks’ salary that can be paid as a redundancy compensation payment. However, employers will have discretion to apply lower limits, as they do at present under the 2006 Regulations
A maximum salary of £80,000 on which a redundancy compensation payment can be based, to be reviewed annually using an appropriate mechanism, such as the Consumer Prices Index.
For members of the Local Government Pension Scheme (LGPS) who are at least 55 years old when made redundant, there will no longer be a requirement for their pension to come into immediate payment. Instead, they will be given the option to:
Where a member chooses to defer taking their pension to a later date, or they choose to take immediate payment of their pension with full early retirement reductions applied, they will be able to take the discretionary redundancy payment to which they would be entitled under their employer’s redundancy scheme, subject to it being consistent with the proposals outlined on the previous page.
Where the pension is to come into immediate payment and a strain cost would be payable for its early release without reductions being applied, the strain cost cannot exceed the overall cap of £95,000 contained in the Exit Payment Regulations, less:
Any reduction in the strain cost due to the above limitations could be made up by the member from their own resources, otherwise they would receive an actuarially-adjusted pension benefit.
The consultation also proposes that the full council of a local authority will have the power to relax the Exit Payment Cap, subject to the approval of the appropriate minister of the sponsoring department.
It also seeks to introduce a requirement for pay policy statements, which must be published annually under the Localism Act 2011, to explain policies on rewarding chief officers who were previously employed by the authority and who, on ceasing to be employed, received a severance payment from that authority.
The consultation closes on 9th November 2020.