Exit Cap Regulations update

Insight

Exit Cap Regulations update

The Exit Cap regulations were formally revoked on 19 March 2021 following the approval of the Restriction of Public Sector Exit Payments (Revocation) Regulations 2021 (the Revocation Regulations) on 25 February 2021.

The Revocation Regulations contain a legal obligation for employers to make payments to employees who left during the period between the Exit Cap regulations coming into force on 04 November 2020 and the date of the Revocation Regulations coming into force.

Guidance issued at the same time as the treasury direction effectively means that any payments made between 04 November 2020 and 11 February 2021 must, therefore, be ‘topped up’ by the difference between what was paid and the exit payment that the employee would have been entitled to had the cap not been in force.

Guidance for the Local Government Pension Scheme (LGPS) for employers is available on the LGPS website, which also sets out some immediate action points for affected employers:

Identify any exits between 04 November 2020 and 11 February 2021 where the exit cap was applied.
If you applied for a mandatory or discretionary waiver, this is no longer needed. You must pay a full strain cost if requested to and you should notify your LGPS administering authority accordingly. The LGPS Scheme Advisory Board has provided advice on how to calculate any interest that may be payable on pension benefits and strain costs.
Check if you made a cash alternative payment as set out in regulation 8 of the Exit Cap Regulations.
If you have made a cash alternative payment you should pay a full strain cost to the LGPS administering authority if they request it and prepare to seek recovery of the cash alternative payment made to the employee when the LGPS administering authority confirms they will be paying an unreduced pension. The Local Governing Authority (LGA) recommends authorities take this step in the interests of effective use of public money and the reputation of the sector.
If you have not made a cash alternative payment you should make provisions to pay a full strain cost to the LGPS administering authority plus any interest due. You may wish to send a list of affected members to your LGPS administering authority to let them know which employees are affected.

You should review other termination payments that were restricted due to the exit cap in line with your policy, for example, discretionary compensation pay. You may also be approached by employees seeking additional amounts where such termination payments were made. The LGA recommends that requests from employees are considered in line with the requirements of the Revocation Regulations, their published policies and their own legal advice. Other employers may wish to take the same approach.

As the cap no longer applies, if an LGPS member exits on or after 12 February 2021 due to redundancy or business efficiency at age 55 or over:

The member is entitled to and must take an unreduced pension.
If requested, employers must pay to the administering authority, the strain cost associated with the early payment of that pension.
Employers must not make a cash alternative payment as set out in regulation 8 of the Exit Cap Regulations.

Exit Cap Regulations update