On the go: The government has announced it is to disapply the restriction on public sector exit payments that came into force in November.
The £95,000 exit payment cap was a source of considerable criticism, not least because it contradicted existing local government pension scheme regulations from the Ministry of Housing, Communities and Local Government.
While the Treasury regulations include strain costs in the exit payment cap, which are incurred when members are allowed to retire early on grounds of efficiency, redundancy, or otherwise with the consent of the employer, unamended MHCLG regulations entitle these same members to immediate and unreduced pensions.
The government’s position had been that the Treasury regulations take precedence as a result of implied repeal, a legal concept which holds that, in certain conditions, more recent regulation that contradicts older regulation is deemed to take precedence as an expression of the government’s intent.
The Local Government Pension Scheme advisory board sought legal counsel, which cast doubt on the applicability of this defence, however.
Several legal challenges were announced, led by a number of public sector unions, with an application for judicial review having been accepted and a hearing before the High Court scheduled for March.
Among the list of complaints was that the government had failed in its duty to consult on the changes, with the Treasury introducing them a day after the Ministry of Housing, Communities and Local Government opened a consultation on its own regulations.
The Treasury’s updated guidance now reads: “After extensive review of the application of the cap, the government has concluded that the cap may have had unintended consequences and the regulations should be revoked. [Treasury] directions have been published that disapply the cap until the regulations have been revoked.”
Affected members, who will have an exit date between November 4 2020 — when the regulations came into effect — and February 12 2021, are entitled to the payment they would have received had the regulation not been enacted.
“If you have been directly affected by the cap while it was in force, you should request from your former employer the amount you would have received had the cap not been in place by contacting your employer directly,” the guidance states.
“Employers are encouraged to pay to any former employees to whom the cap was applied the additional sums that would have been paid but for the cap.”
Commenting on the announcement, Hymans Robertson partner Douglas Green said: “We welcome today’s change that addresses the situation where LGPS funds were in effect forced to choose which set of regulations to breach.
“We are also glad to see that members will be effectively reimbursed, and that employers are receiving clear instruction to treat such cases as if the cap had not applied.
“It is important to note that LGPS funds will have taken various steps over the past three months to address the £95,000-cap legislation, and these steps will now require to be readdressed,” he added.
The Treasury guidance states that it remains “vital that exit payments deliver value for the taxpayer, and employers should always consider whether exit payments are fair and proportionate”.
The government will bring forward new proposals to tackle “unjustified” exit payments, it said.
