Exit payment cap

Please note: the following information applies to employers and employees of councils (whether metropolitan, county, district, borough or parish) police and fire authorities and academies.


 

Government consultation - restricting exit payments in the public sector  Back to top

You may recall from a previous Fund communication that the government planned to introduce a £95,000.00 (£95K) cap to exit payments for public sector bodies. The original government proposals were issued in summer 2015, however on 10 April 2019 the government announced a final consultation which closed on 3 July 2019


 

What is the exit payment cap?  Back to top

The cap limits the exit payments made to employees of public sector bodies. The proposed cap of £95,000 would cover the total value of exit payments (before tax) made by an employer and includes the strain cost of early payment of pension and redundancy payments, plus any other compensation or severance payments (e.g. pay in lieu of notice, enhanced employer compensation lump sum payments etc.).


 

What is the impact on pension scheme members?  Back to top

The cap will only apply to those individuals where the total of their exit payments is greater than the £95K limit. Where this applies, the value of the exit payments will have to be reduced to the point where the total value of all exit payments is equal to £95,000.


 

Example  Back to top

For someone aged 55+ who leaves because of redundancy or reasons of efficiency, who is restricted to the £95,000 cap, the possible options are:

  • receive payment of a reduced pension and lump sum, but keep the redundancy or other exit payments (limited to the £95K cap)
  • give up some or all their redundancy payment or other exit payments to receive an unreduced or limit the amount of the reduction to the retirement benefits
  • choose a mixture of the 2 options above, this means giving up some of redundancy pay to remove some (but not all) of the reduction on pension and lump.

Please note: if your retirement date is after the implementation of the exit cap, you will be subject to Local Government Pension Scheme rules that apply at that time i.e. subject to the exit cap.


 

Further information  Back to top

If you need any further information about the areas covered by these notes, please contact us.


 

Printable version  Back to top

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