Commentary on reforming local government exit pay (a consultation on the reform of exit payments)
07 Sep 2020
Commenting on the impact on LGPS early retirement pensions of the Consultation on the reform of exit payments in local government announced today, Douglas Green, Partner, Hymans Robertson says:
“It is really good to see this consultation finally being announced. It was back in 2015 when the Government first announced its proposals to prohibit six-figure exit packages from the public sector, by imposing a £95,000 cap on such packages. Over the past five years, however, these proposals have (like much Government business) fallen victim to first Brexit and more recently to Covid-19, so the proposals remained on the shelf. It is finally being given the attention that is needed, albeit this consultation only applies to English public sector employers.
“Our view in 2015 was that the proposals would have a number of unintended consequences flowing from their LGPS aspects, such as the cap hitting many who are not high earners. These issues are still the case, and indeed there are further consequences due to the uncertainty between now and potential implementation in early 2021. What if an employer such as a council or academy wishes early retirement quotes now for a reorganisation occurring in the next calendar year? Will the amended regulations allow those benefits be honoured or not?
“From the details of the consultation announced today, a key element we await, other than implementation date, is the actuarial methodology and factors underpinning the standardised approach for calculating the strain cost. The issue here is that the exact choice of methodology and assumptions will affect which members’ packages are caught by this cap and which aren’t. In the absence of this information it is impossible for funds to identify which members’ quotes need to be flagged as potentially impacted by these changes. We would ask MHCLG to make such methodology and assumptions available as a matter of urgency, and indeed we would have hoped that these had been prepared during the past five years.”