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Restriction of Public Sector Exit Payments Regulations 2020 to be revoked

16 February 2021
As of 12 February 2021, the government has confirmed that the cap introduced on exit payments in the public sector may have had unintended consequences and should be revoked. 

We explore in more detail below what this means for the public sector. 

The Restriction of Public Sector Exit Payments Regulations 2020 ("Regulations") 

The Regulations came into force on 4 November 2020 as a result of the government's commitment to ensure exit payments in the public sector were fair and proportionate. The Regulations set a cap of £95,000 which applied to termination payments, including but not limited to, employer pension contributions, redundancy payments and ex-gratia payments. The Schedule to the Regulations sets out the full list of bodies subject to the cap. 

The government introduced the Regulations as it considered that the majority of six figure exit payments were disproportionate and did not provide value for money for taxpayers. 

However, the government has since confirmed that the cap may have had 'unintended consequences' and has published a Treasury Direction and Guidance disapplying the cap until the Regulations are fully revoked.  

The Treasury Direction and Guidance encourages public sector employers to pay ex-employees who had an exit date between 4 November 2020 and 12 February 2021 and were affected by the cap, the additional sums that would have been paid had there been no cap. Whilst the guidance states this is a matter open for employers, there is a strong expectation that employers will reimburse any payments due.

Next steps 

Although the Regulations will be revoked, the government has suggested that it will undertake a review, as the issue of "unjustified" exit payments in the public sector remains an ongoing concern. Whilst it is not clear whether another cap will be introduced, we expect there will be further guidance or reform issued in the near future, which creates further uncertainty.

In the meantime, the decision to remove the cap whilst welcomed in a number of quarters will cause disruption to many public sector bodies. These bodies entered into agreements and paid exit payments in good faith in line with the Regulations and with a desire to ensure finality to an employment relationship. Public bodies now need to undertake an audit of the payments made and consider how additional sums should be paid when budgets have no doubt already been finalised. 

Should any employers have a query whether as a direct result of the Treasury Direction or related to exit payments generally, please do get in touch with a member of the employment team who would be happy to assist.    

Authored by Kate Meadowcroft and Sarah Magee 

Further Reading