Treasury confirms public sector pay offs to be capped at £95k

26 Sep 16

Public sector exit packages will be capped at £95,000 the government confirmed today following a consultation with public sector bodies and workers.

Issuing its response to the consultation, the Treasury unveiled a reformed framework for public sector exit pay. The changes will apply to the majority of the 5 million-strong public sector workforce, including civil servants, teachers, NHS workers, local government workers, armed forces personnel, police and fire fighters.

The government proposed last year to cap public sector exit payments at £95,000, effectively outlawing six-figure payouts. Also, a mooted ‘clawback’ mechanism will come into force. Under this rule, highly paid public servants who return to the public sector soon after leaving will be forced to repay their redundancy compensation.

The Treasury confirmed in a statement that 350 responses had been received to the consultation, which included feedback from unions, public sector organisations and individuals. While it acknowledged that the majority of respondents opposed the plans, a smaller number supported the principles of reform.

It stated it had “not seen evidence to change their view that applying upper limits across the different elements used to calculate exit terms in the public sector would make public sector terms fairer, more modern and more consistent”.

Such reforms could lead to significant cost savings of up to £250,000 annually, while maintaining a good standard of compensation. They also reflect increased life expectancy and are more in line with compensation in the wider economy, according to the Treasury.

Among the details are a maximum tariff for calculating exit payment of three weeks’ pay per year of service and a ceiling of 15 months of the maximum number of months’ salary that can be paid. Also, a maximum salary on which an exit payment can be based will be put in place. As a starting point the government will expect this to align with the existing NHS salary limit of £80,000.

The government said the reforms were necessary to ensure greater consistency between public sector redundancy compensation. They have been designed, it said, to ensure a “fair and appropriate” level of compensation for employees required to leave a job voluntarily, compulsory redundancy or through retirement.

Government departments will now be required to produce proposals for reform for their respective workforce, consistent with the terms set out in the framework. The Treasury has set out a deadline of nine months for the changes to be made.

“Exit payments will continue to be fair to employees and provide an appropriate level of support as a bridge into finding new work, or into retirement,” it stated.

“Nevertheless, it is right to take forward the proposed reforms to cut the cost of redundancies, and to ensure greater consistency between schemes.”

It added: “The approach of individual workforce negotiations within an overarching framework strikes the right balance in ensuring fairness to the individual and the taxpayer, and ensuring that there is greater consistency between schemes while recognising the differences between workforces.”

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