further reading

Consultation on draft public sector exit payment recovery regulations published

Following a consultation during 2014, HM Treasury has published a further consultation on final draft regulations providing for the recovery of exit payments made to public sector employees who return to work in the public sector.  The consultation paper sets out the proposed mechanism for repayment and draft regulations.

Which organisations are affected?

An illustrative schedule sets out the bodies and offices caught by the regulations and the consultation paper lists organisations that are proposed will have an exemption. This includes, for example, the FCA, Armed forces, National Museums, Public Broadcasters and Housing Associations.

What payments are caught and not caught?

The types of payments currently in and out of scope are listed in the regulations. In particular, payments caught are exit payments: on account of dismissal by reason of redundancy; made consequently upon a voluntary exit from employment; to reduce or eliminate an actuarial reduction to a pension upon early retirement; to extinguish any liability to pay money under a fixed term contract; under a settlement or conciliation agreement; made by way of shares upon a loss of employment; or made as a consequence of, in relation to, or conditional upon, loss of employment whether under a contract of employment or otherwise. Payments not caught are: payments made in respect of incapacity or death as a result of accident, injury or illness; a payment made in respect of accrued but untaken contractual leave; a payment in lieu of notice due under a contract and a payment made under a court or tribunal order.

What is the mechanism?

In summary, authorities are required to keep records of qualifying exit payments and the regulations require the individual to notify both their new and previous employer where they propose to return to work in the public sector in the 12 months following an exit. Old employers will be required to make arrangements with individuals where exit payments are due to be recovered and take all reasonable steps to recover the exit payment. If the individual does not comply then the hiring authority should take appropriate action. This includes not employing or engaging the individual (including on a self-employed basis) or terminating the relevant contract. If the hiring authority does not take such action it needs to record why not and retain this for 3 years. The relevant Secretary of State (or appropriate person on their behalf) or a full council where appropriate can grant a waiver from repayment but this needs to be reported and published as part of annual reports and accounts.

What are the recent changes?

Some modifications to the regulations from the previous consultation are, in summary:

  • The minimum earnings threshold for individuals subject to the recovery provisions should be £80,000, not £100,000
  • The exit payment recovery policy will apply to qualifying returns to any part of the public sector, rather than just returns to the same part of the public sector
  • The recovery amount will reduce over time for a return up to 12 months from exit
  • Employer funded pension top-up payments made under the Local Government Pension Scheme will be included within the sums to recovered, in order to align with the recovery of other similar payments

The consultation was open until 25 January 2016 and, according to the consultation, compliance will be required from April 2016.

For more information, please contact Helen Dallimore, senior associate on +44 (0)1392 685289 or email helen.dallimore@footanstey.com


Tags: Employment and Pensions