£95,000 cap on termination payments to be ‘revoked’

Following the government’s attempt over many years to introduce a cap on termination payments, the government finally introduced The Restriction of Public Sector Exit Payments Regulations 2020 in November 2020.

The regulations provided a statutory cap of £95,000 that public authority employers could pay staff in severance situations. The aim of the cap had always been to prevent public bodies from making excessive termination payments to departing employees and to ensure taxpayers’ money was spent fairly. However, following much criticism of the cap, the government has now issued mandatory treasury directions to disapply the regulations.

Much of the criticism and concern about the regulations has been because the cap also impacted on redundancy and pension strain payments.

The guidance accompanying the directions state that staff who have been affected by the cap should contact their employer to request the amount they would have received had the cap not been introduced. Equally, employers are encouraged to pay the additional sums.

What the government will do now regarding this proposal remains to be seen. However, we suspect the regulations will be reviewed and, at some point, a new version will be introduced.