24 September 2015

A new £95,000 cap will apply to exit payments for public sector workers, the Government has confirmed. This follows its manifesto promise and a consultation.


Key points in the Government's high level consultation response:

  • There is no list of the bodies where the cap will apply. Until there is, some may be uncertain whether they are covered. In principle, bodies are covered if 'classified within central and local government and non-financial public corporation sectors as determined by the Office for National Statistics' but with some exemptions.
  • On devolution, the policy extends to bodies where employment and pay practices are a UK Government responsibility. Otherwise, it is for the Scottish, Welsh and Northern Ireland administrations to decide whether to make similar arrangements.
  • All forms of exit will be subject to the cap, including voluntary and compulsory redundancy and voluntary exits where there is compensation.
  • It will apply to the total value, before tax, of all exit payments, including lump sums, early access to unreduced pension, payments in lieu of notice and special severance payments. Untaken leave and compensation for injury or ill health will be excluded.
  • The level of the cap will be subject to future review and there will be a waiver procedure.
  • All the technical detail remains to be confirmed, including on pensions.


Questions on pensions include:

  • It is unclear whether the cap will apply where individuals have protected terms following a TUPE transfer. The Government is minded not to apply it but the point is not settled.
  • The response document stresses that accrued pension rights will not be affected. But for members with a right to an unreduced early pension in certain circumstances (eg in the LGPS) this is not immediately easy to reconcile with the inclusion of early pensions in the cap.

The primary legislation will be in the Enterprise Bill (now in Parliament).

A lot of the crucial detail will be in regulations; eg whether there will be any transitional arrangements protecting existing employees. Draft regulations are unlikely to be published before the Enterprise Bill becomes law.

Read the response document.

For more information, please get in touch with your usual contact in our Pensions team.

Key contact

Richard Knight

Richard Knight Partner

  • Head of Pensions Practice
  • Pensions Services
  • Pensions Legal Advice

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