The government’s commitment to reduce public sector termination packages has this week been confirmed by their published response to a consultation on public sector exit payments which ran from 5 February to 3 May 2016.

The aim of the proposals in the government’s response is to ensure greater consistency between public sector redundancy compensation schemes and value for money for the taxpayer. They will be applied by the majority of public sector workforces including:

  • NHS workers;
  • Police officers;
  • Firefighters;
  • The Judiciary;
  • Teachers;
  • Civil Servants;
  • Local Government workers; and
  • Armed Forces Personnel.

The reforms will be implemented over the next nine months across public sector workforces in line with the proposals set out in the response. Scotland, Wales and Northern Ireland will have to decide whether to apply these changes. Their aim is to set a fair and appropriate level of compensation for anyone in the public sector who is required to leave their job either on a voluntary redundancy or mandatory redundancy basis.

The new exit payment framework includes:-

  • A salary maximum of £80,000 on which an exit payment can be based;
  • The ability to limit or end employer-funded early access to pension as an exit term;
  • A maximum of 3 weeks per year of service that can be paid;
  • A maximum of 15 months’ salary that can be paid as redundancy payment
  • A taper on the amount of lump sum compensation an individual is entitled to receive as they get closer to their normal pension retirement age.

This is the latest step by taken by the government to try to modernise exit payments in the public sector and introduce more fairness and consistency. These changes should be viewed in the wider context of steps that will be taken by the government, which has committed to introducing two other measures on public sector workers. The first is to cap the level of compensation on all public sector exit payments at £95,000 and the second is to “clawback” exit payments where individuals return after a short period of time to work in the public sector. The government has already indicated that there are also proposals afoot to change the tax treatment of all termination payments from April 2018.