Exit cap proposals “threaten LGPS pension entitlements”

Proposals by the government to include pension entitlements in a proposed cap of £95,000 on exit payments to local authority employees are in conflict with Local Government Pension Scheme regulations, according to a union for senior council managers.

Under LGPS regulations, employees over 55 who are made redundant are entitled to a “strain” payment to ensure they receive the pension they are expecting with immediate effect.

However, this week, the government launched a consultation on regulations to introduce the cap, which say pension top-up payments “must be reduced if otherwise the total exit payment would be over £95,000”.

Guidance released by the Treasury described pension strain payments as “payments made by an employer as an additional contribution to a pension scheme in respect of an individual’s exit, so that the individual receives a greater pension than they would otherwise be entitled to…”.

However, speaking to Room151, Ian Miller, honorary secretary at the Association of Local Authority Chief Executives and Senior Managers (ALACE), said: “Strain payments don’t mean that someone’s pension is higher than it would have been, but clearly there is a cost because the pension is starting earlier.

“Neither the employee nor the employer has any choice under the LGPS regulations.

“These new regulations can’t override the entitlement to this money under the LGPS regulations unless they are amended and the government isn’t proposing to do that.”

Miller, who is chief executive at Wyre Forest District Council, said that the proposal could hit lower earners who have built up years’ worth of pensions.

He said: “Depending on these employee’s age and pension provisions, it isn’t hard for the pension strain alone to be £200,000.”

The Treasury guidance alongside the proposed regulations says that where a capped exit payment includes several elements – such as a contractual redundancy lump sum and a pension top up payment, “it is for the responsible authority to establish how the elements are subject to the cap”.

It said: “HM Treasury’s general assumption is that, where possible, employers will cap the contractual redundancy lump-sum, and allow individuals to receive the pension top up payment in full.

“However, the pension top-up payment must be reduced if otherwise the total exit payment would be over £95,000.”

Miller also voiced concerns about the fact the Treasury has not announced an implementation date for the draft regulations.

He said: “This is no good for employers or employees, as no one can predict when the regulations will come into force: the date depends on when both Houses of Parliament approve them following the consultation and the changes that the Treasury makes to the regulations.”

He also criticized a proposal in the draft regulations requiring councils to obtain the Treasury’s consent if a full council meeting decides to waive the £95k cap in any particular case.

“This seems to us a significant interference in decision-making on employment matters where councils have enjoyed full autonomy, subject only to compliance with the law,” he said.

Dave Penman, general secretary of FDA, the union for senior managers and professionals in public service, criticized the government for removing a clause originally proposed, which would have protected workers earning under £27,000 a year.

He said: “Not only has this protection been abandoned, but it demonstrates that their blunt approach to capping redundancy payments will hurt teachers, police officers, fire fighters, doctors, paramedics and other individuals serving the public.

“It is disappointing that a government minister – who day in, day out witnesses the incredible job that public servants do for her government – would use the dog-whistle tactics of demonising senior managers to hide the true impact of her policy.”