Exit terms and conditions – again
Coming soon – yet more change to our terms and conditions! Fran Hunter and Naomi Cooke set out the main points on exit payment reform.
Reform of our exit compensation is coming from four separate directions with the longest serving and the highest paid being particularly hit. In the meantime, most civil service employers are in the process of reducing their headcount significantly. Technically these four elements come from three separate departments: Business, Innovation and Skills (£95k cap via the Enterprise Bill), HM Treasury (Exit Payment Recovery and Public Sector Exit Payment Reform), and Cabinet Office (Civil Service Compensation Scheme Reform).
The latest developments have come from the most recent two consultations from HM Treasury and Cabinet Office.
HM Treasury (HMT) Consultation
The last spending review announced the aim to reform public sector exit arrangements. The HMT consultation seeks to set the parameters of these at levels closer to those perceived to be a private sector norm and for more consistency across the public sector. The consultation seeks to set limits on various parts of the redundancy payment package that people working in any area of the public sector can receive. It then expects public sector employers to amend their arrangements so they fall in line with the pronouncements made by HMT following the consultation. Treasury explicitly reserves the right to make primary legislation to ensure employers comply.
The main proposals in HMT’s consultation are set out below (the current CSCS terms are in italics):
- Setting the maximum tariff for calculating exit payments at three weeks’ pay per year of service. One month pay per year of service.
- Capping the maximum number of months’ salary that can be used when calculating redundancy payments to 15 months. 21 months. Where employers distinguish between voluntary and compulsory redundancies there may be a case for maintaining a differential by applying a lower limit to the latter. Likewise, where employers offer voluntary exit packages that are not classed as redundancies there may be a case for applying a slightly higher limit to those as part of an overall package.
- Setting a maximum salary for the calculation of exit payments. This limit could be set at various levels and could potentially align with the NHS redundancy scheme’s salary cap of £80,000. Around £150,000.
- Enabling the amount of lump sum compensation an individual is entitled to receive to be tapered as they get close to the Normal Pension Age (NPA) or target retirement age of the pension scheme to which they belong, or could belong, in that employment. Tapering for those within 15 months of NPA.
- Reducing the cost of employer-funded pension top up payments, such as limiting the amount of employer-funded top ups for early retirement, or removing access to them, and/or increasing the minimum age at which an employee is able to receive an employer-funded pension top up. The latter would link the minimum age more closely with the individual’s Normal Pension Age in the scheme in which they are currently accruing, or have accrued, pension benefits. Employer-funded early access to unreduced pension at 50/55 in voluntary redundancy situations and in voluntary exit cases at the employer’s discretion.
Cabinet Office Consultation
Following (as in the next working day after) the launch of the HMT consultation, Cabinet Office published its proposals to change the Civil Service Compensation Scheme (CSCS). In the covering letter to the communication with the unions, Cabinet Office says it is “looking to consult with a view to reaching agreement” on the proposals.
The five ‘principles’ behind these proposals are:
- to align with wider compensation reforms proposed across the public sector, including the Government’s manifesto commitment to prevent excessive pay-outs by ending six-figure exit packages;
- supporting employers in reshaping and restructuring their workforce to ensure it has the skills required for the future;
- to increase the relative attractiveness of the scheme for staff exiting earlier in the process, and to maintain flexibility in voluntary exits to support this aim;
- to create significant savings on the current cost of exits and ensure appropriate use of taxpayers money; and
- to ensure any early access to pension provisions remains appropriate.
- Cabinet Office hasn’t provided any evidence that the current system, agreed as a lasting and sustainable settlement in 2010, is not working; but the Minister is clear that he wants the reforms to result in a further 33% reduction in the cost of exits. This follows the 40% reduction that resulted from the changes in 2010.
The main proposals in the documents are as follows (again with current terms in italics):
- set the standard tariff to three weeks’ salary per year of service (one month);
- set the Voluntary Exit cap at 18 months’ salary (21 months); set the Voluntary Redundancy cap to 12 months’ (21 months); and set the Compulsory Redundancy cap to nine months’ (12 months).
- only allow employer-funded top up for early access to pension where the member has reached the minimum pension age for a new entrant to the scheme (i.e. 55 at a minimum) (currently available from 50 for those in schemes before 2006);
- to introduce an absolute cap on CSCS payments at £95,000 in line with proposed legislation (that is current ministerial policy but an absolute cap would remove that discretion); and
- set notice periods for all exits from the Civil Service under the CSCS at three months (contractual right for six months for some in compulsory exits).
As is evident from the second bullet point, these proposals will make a fundamental change to the agreement, that no one who is placed ‘at risk’ could be made compulsorily redundant without having the opportunity to receive the maximum terms. This change would mean that the best terms would only be available at Voluntary Exit stage.
Cabinet Office makes no mention of redeployment, a facility for partial buy out of the reduction for early payment (an issue raised by many members caught by the £95k cap) or changes to the protocols around redundancy handling.
ARC and the FDA urge you to respond to the consultation by the deadlines below. It would also be helpful for members to copy in the FDA at [email protected].
Exit Payment Recovery Regulations – intended to be implemented by end February but now delayed
Enterprise Bill – currently going through Parliament, intended for Royal Assent in April for implementation in October