Public sector exit payment caps will penalise low earners unless the govt listens today

22 February 2016

By Michelle Singleton, UNISON Policy Unit

The Enterprise Bill, now on its Second Reading in the House of Commons and under debate today, legislates to cap exit payments to public sector workers at £95,000. On first glance, it seems the new ruling will only affect the highest earners, but if you drill into the detail of the Bill, the government has not been careful enough to protect those on a low wage from being disproportionately penalised.

Currently, workers over the age of 55 who are members of the Local Government Pension Scheme can accept early retirement as an alternative to redundancy, allowing them to withdraw their pension without a penalty. However, early retirement would usually come with penalties from pension providers, who demand a one off ‘strain cost’ to be paid before a workers’ full entitlement can be received. At the moment, in a redundancy situation, this penalty is covered by the employer, and the Conservatives are including these costs within the £95,000 cap.

They are also including early conciliation (COT3) settlements: a form of compensation for workers who have a serious dispute with their employer and have gone through the new, mandatory, process of conciliation talks via ACAS as an alternative to taking a case through to a full employment tribunal.

Because the government has not exempted these two forms of payment, the £95,000 cap will affect even earners of a below-average wage if they have a long service history with their employer or a serious dispute. In our consultation response on this issue, we pointed out that long-term staff could be caught out by the cap even if they earn just £25,000 per year and the government has subsequently accepted this but do not show any signs of doing anything about it. Additionally, those who earn a moderate wage but who accept a settlement from their employer following a grievance could also lose out.

We are pushing for the government to make changes to their plans for the cap to make sure it only affects the highest earners rather than catching people on low wages, particularly those who are over 55, who are more likely to struggle in today’s job market should they be made redundant. The cap should not include pension strain costs and COT3 payments; workers earning below the UK average wage should be exempted; and the cap should be index-linked to ensure it increases in tandem with average earnings, therefore preventing lower paid workers being caught by the rulings in the future.

Aside from the technicalities of exit payments, it is important to note that most public sector workers do not receive large payouts and that the government’s proposals will effectively save the public purse very little indeed (the government acknowledged the average exit payment was £25,000). It is essential, therefore, to see their plans in the context of other changes to workers’ deals in the public sector to uncover what larger agenda may be driving Tory amendments to the law.

Two other programmes affecting public sector workers at this time of unprecedented cuts and upheaval are also being pushed through: New rules stating that exit payments can be recovered if recipients earning over £80,000 move back into the public sector in any job within two years of being made redundant; and brand new regulations currently being trialled in the Civil Service, which are designed to make dismissals cheaper.

UNISON are concerned about the decision to recover exit payments from highly skilled public sector workers regardless of what job they take, as this will effectively mean a doctor at consultant level who takes a role in local government – for example – will have all redundancy pay removed from them, even though they are in a different profession and may be returning to a much lower wage. At the point of re-entry, the professional will also have their duration of service reset to zero, which means if they were made redundant again they would be entitled to a much lower settlement, thereby incentivising skilled public sector workers to join the private sector and never look back. In this way, we could lose highly trained health professionals to private care providers, draining the NHS of much-needed skilled staff. This could be prevented by making a worker’s service duration continuous so that if they re-enter public service following redundancy, exit payments can be recovered without workers risking massive financial loss in the future.

In a new consultation published this month, the government has set out even more plans to reduce current entitlements and make dismissal easier, including limiting exit payments to 15 months’ pay or less, regardless of a worker’s duration of service. Furthermore, a ‘month’ will be redefined as three weeks and a maximum monthly wage will be agreed (ignoring a worker’s actual salary) for the purpose of making this calculation! For workers nearing retirement, lump sum payments will be reduced and employers will pay lower, or no, pension ‘strain costs’ for those facing early retirement, potentially leaving workers with the choice between paying a lump sum upfront to receive their full pension, or agreeing to a lower income after retirement.

All of this after the Tories promised not to touch the Local Government Pension Scheme for 25 years!

You can read more detail about the government’s plans and Unison’s response here