Public sector exit pay cap revoked

The controversial £95,000 cap on exit payments in the public sector which only came into force on 4 November 2020 was removed with immediate effect on 12 February 2021.

The validity of the cap had been contested by a number of organisations representing employees in the public sector which had raised concerns about the impact on pension entitlements amongst other things. At least one legal challenge was expected to be heard before the end of next month in the High Court.

The Government’s decision does appear to recognise that the exit pay cap regulations implementing the cap were flawed in that it admits they may have had "unintended consequences".

Updated guidance has been published which states that if any employee has been directly affected by the cap they should request that their former employer pay the amount they would have received had the cap not been in place. 

Employers are expressly “encouraged” to pay the additional sums to any affected former employees and it is stated that it is HM Treasury’s expectation that they will do so.