Cap on golden handshakes could affect average earners at Magnox

More than 1,000 workers at Magnox, a privately owned management and operations contractor responsible for 12 sites owned by the Nuclear Decommissioning Authority, will be subject to the cap proposed by the government in May last year.

It materially affects ordinary operatives in the nuclear decommissioning industry, not because of large exit payments, but because pension benefits are adjusted in the event of redundancy

Kevin Coyne, Unite

The cap was designed to bring an end to six-figure exit payments for public sector workers and applies to all forms of exit payment for public sector employees across central and local government and “non-financial public corporation sectors” as determined by the Office for National Statistics.

The £95k cap will include:

• cash lump sums;

• early access to an unreduced pension;

• payments in lieu of notice.

The new legislation could supersede protections under previous legislation, including statutory protections introduced under schedule 8 of the 2004 Energy Act – currently safeguarding Magnox workers’ pensions.

Kevin Coyne, national officer for energy at trade union Unite, said the bill would bring “unintended consequences” for workers at Magnox and across the NDA.

“It materially affects ordinary operatives in the nuclear decommissioning industry, not because of large exit payments, but because pension benefits are adjusted in the event of redundancy,” he said.

“The consequences flowing from the bill would be directly contrary to the intentions of parliament in previous pension protection legislation under… energy privatisation.”

But Michael Hayles, partner at law firm Burges Salmon, said interaction between existing protections and the cap will largely depend on what the government pushes through into secondary legislation.

“There is a legal question over which would take priority,” he said. “Given the breadth of the coverage there are bound to be areas where it will be quite a complicated question as to which protection is overruled by the exit caps.”

Public sector hit

MPs debated the enterprise bill yesterday at the House of Commons.

Angela Eagle, Labour MP for Wallasey and business spokesperson for the party, said the cap could impact pension strain payments – the cost of the actuarial reduction triggered by early retirement – for long-serving workers on moderate and low incomes, rather than just those on the highest salaries.

“The cabinet office has confirmed that some civil servants earning less than £25,000 a year could be affected by the cap because they have long service. Surely this was not the intention,” she said.

Steve Simkins, head of public sector pensions at consultancy KPMG, said the cap was “public sector reform via the back door”.

“Unreduced defined benefit pensions from age 55 are extremely valuable and it is… the government’s intention to remove that wherever possible,” he said.

Simkins said the pension strain payment could itself exceed £95k for long-serving public sector workers, raising questions about how the new legislation would interact with scheme rules.

“Do you allow them to have the whole value of their unreduced pension or do you reduce it?” he said.