Range of Reasonable Responses Newsletter: March 2020
It was great to see a full house at the Local Government Association's Employment Law Conference back in February. As well as hearing from me going on about employment law, delegates also heard the latest news on the Government's proposal for a cap on exit payments in the public sector. This is a saga that has been going on since 2015 and it is still not entirely clear when - or even if - the new rules will come into force.
The headline that this policy creates - public sector employers prevented from making a pay-off of more than paying more than £95,000 to departing employees - sounds fair enough. The private sector might choose to throw their money around rewarding failure and preventing their unfair practices from being exposed in a Tribunal - but public money should be handled more carefully. The problem is that the substance of the law that is being proposed does not match the headline. Crucially, the payments affected by the proposed cap include pension strain. This is the sum paid by a public sector employer to the relevant pension fund to cover the additional costs of making an employee redundant in circumstances where they will be entitled to an enhanced pension.
In local government, for example, an employee who is made redundancy aged 55 or more will be entitled to enhanced pension benefits. The sum that a council has to pay to the pension fund to cover this varies from fund to fund - but can easily top £95,000 on its own, even for middle ranking employees. Strangely the Government never describes its policy as cutting the pension entitlement of older workers who are made redundant - but that is the primary effect of the law that is being proposed.
The current draft of the Regulations, however, has some problems and we are expecting a new final version to come out later this year. One issue that needs to be sorted out is how the provisions on pension strain interact with the rules of pension schemes. The Local Government Scheme gives 55 year old members a right to certain benefits when they are made redundant. It is no good preventing employers from funding the benefit without changing the benefit itself - otherwise chaos ensues. So we will need to see a reform of the pension scheme rules themselves before the £95K cap can be imposed. Current betting seems to be that the cap could apply from this autumn - but we have heard that before. We'll just have to wait and see where the reform sits in the new Chancellor's list of priorities.