"Fat cat" cap

inthebubble

The Queen's Speech confirmed that the Conservative manifesto pledge to limit termination/exit payments to public servants to £95k is to be brought into law.

This is to include so-called "pension top ups".

Do any of the LGPS or public sector scheme experts out there know anything about this yet?

1. The cap is to be introduced in the Enterprise Bill, which is set to be fast tracked, according to the Secretary of State, but its passage will also include a period of consultation. Anyone heard when it's coming into Parliament?

2.I assume the term "top up" covers the way in which employers sometimes buyout the cost of actuarial reductions for early retirement? For example, in LGPS, it's mandatory for employees over 55 being made redundant, or retired on efficiency grounds, to receive a pension unreduced for early payment, with employers paying a "strain" charge to the pension fund to boost the member's benefits. It might also include discretionary purchase of extra service.

3. Is it too early to say how the pension top up elements of any pay off might interact with other elements such as redundancy pay? Which would be paid out first? Who would decide?

Many thanks.

hyubh

inthebubble wrote: »

I assume the term "top up" covers the way in which employers sometimes buyout the cost of actuarial reductions for early retirement? For example, in LGPS, it's mandatory for employees over 55 being made redundant, or retired on efficiency grounds, to receive a pension unreduced for early payment, with employers paying a "strain" charge to the oension fund to boost the member's benefits.

Your example is expressly excluded in the draft legislation - see Part 2, para 4:

https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/396597/DRAFT-_Exit_Payment_Regulations_vFinal.pdf

It might also include discretionary purchase of extra service.

Augmentation went away with the CARE scheme, though there is the facility to 'award' up to £6500 additional pension (or whatever it has gone up to from April). That would be very unusual however, at least for a council employer.

inthebubble

Thanks hybuh. It's good to see that what I describe was excluded from an earlier piece of legislation (the Small Business, Enterprise and Employment Act 2015). That concerns repayment of exit payments on getting a new job in certain parts of the public sector.

I'm asking about a separate proposal, to be included in the forthcoming Enterprise Bill, which has not yet been published - though I imagine some of the public sector employers, unions and pension schemes are in touch with civil servants about it. It proposes to limit the total amount of compensation that can be paid to employees leaving the public sector - regardless of whether or where they go on to work.

I'm too new to post links but Ministerial briefings just before the launch of the manifesto in January, and ahead of the Queen'sSpeech in May, both include the phrase "pension top ups" in the list of payments that will be included in the cap. What meaning can this have?
Thanks.

inthebubble

Since my earlier enquiry, the government has published a consultation on its proposal to limit the amount that those working in the public sector can receive on redundancy or termination:

https://www.gov.uk/government/consultations/consultation-on-a-public-sector-exit-payment-cap/consultation-on-a-public-sector-exit-payment-cap

There is a useful summary here:

http://www.osborneclarke.com/connected-insights/blog/end-golden-goodbyes-public-sector-government-consults-exit-payment-cap-95000-could-limit-early-redundancy-pensions-lgps/

According to analyses by the trades unions, this could affect many grades of workers, not just "fat cats". PCS, for example, estimates that the cap could hit employees with long service who are earning £27k a year.

This change will have a particular impact in local government, as current LGPS regs require early release of unreduced pension to those over 55 in redundancy or business efficiency terminations.

The consultation closes at the end of the month. News reports suggest that legislation to bring final recommendations into effect will be included in the Enterprise Bill this autumn.

No suggestion about implementation date. April maybe?

If anyone has any inside knowledge about this, I'd be pleased to have it.

Thanks.

dunstonh

According to analyses by the trades unions, this could affect many grades of workers, not just "fat cats".

What is your definition of Fat Cat?
is it like Labour classing anyone earning over a certain amount as a banker?

inthebubble

Interesting question.

The media have been using the term "fat cat" when talking about this issue; see, for example:
http://www.express.co.uk/news/uk/579380/Fat-cat-payouts-Tories-ban-golden-goodbyes-public-sector-staff

But the new proposals won't just affect "chiefs" and other "highly paid state officials" (to use the Express's words); they could affect people earning roughly average salaries, if they've long service.

hyubh

inthebubble wrote: »

Since my earlier enquiry, the government has published a consultation on its proposal to limit the amount that those working in the public sector can receive on redundancy or termination

Yes, and with the proposals explicitly not excluding LGPS strain charges (against my earlier expectation!).

inthebubble wrote: »

The media have been using the term "fat cat" when talking about this issue

Does this mean much? Insofar as 'fat cat' is a meaningful category, then someone on a 'roughly average salary' with 30 years LGPS membership would surely count as at least a fairly podgy feline in a pensions context. The same goes for someone with 30 years membership in a private sector final salary scheme - pretty much no one under 40 will ever enjoy such a benefit.

But the new proposals won't just affect "chiefs" and other "highly paid state officials" (to use the Express's words); they could affect people earning roughly average salaries, if they've long service.

How do you work that one out? Not a rhetorical question - for the strain charge alone to breach the limit for someone with 30 years service, I'd expect them to be earning at least 40K (maybe more), keeping in mind the charge will be limited by such a member being a pre-2006 joiner by a distance and so having 85 year rule protections. (The precise number will vary given the rates used are determined by the fund's own actuary rather than centrally by GAD.)

taktikback

A £95k pay off is enough for anyone...be serious...doesn't matter what type of cat you are....playing the "poor me I'm a downtrodden public servant" just doesn't wash...

hyubh

taktikback wrote: »

A £95k pay off is enough for anyone...be serious...doesn't matter what type of cat you are....playing the "poor me I'm a downtrodden public servant" just doesn't wash...

That's not the issue. IIRC, your wife's the school bursar, is she not? As such, she'd be the sort of person - above average earner, but not a 'fat cat' in tabloid imagery - that it would become harder to get rid of, were that desired, at least if she had a lot of service.

That said, strain charges affect redundancy decisions now anyway, so it's arguable whether a gimmicky cap would make all that big a difference, especially given the proposed let-out clause for local authorities (namely, that the council [i.e., councillors not officers] can decide to override it for specific cases).

inthebubble

Thanks hyubh.

In answer to your question about where the figures came from, I drew the claim that it could affect employees earning £27k from the PCS union:

http://www.pcs.org.uk/en/news_and_events/pcs_comment/pcs_comment.cfm/pay-off-cap-yet-another-attack-on-public-sector

It would be reasonable to infer that they are taking into account not only "strain" costs for pension release but also any statutory or contractual redundancy or severance payments that may be due. The proposed cap would apply to these.

All best wishes.
inthebubble

AlanP_2

Just as a reference point (my wife works in HR for a LA and has been looking at this recently and has responded to the consultations that are going on) and we were talking about it last night after I read this thread.

Across the local authority sphere ~3% of " pay off" deals over the last couple of years would have fallen foul of this.

So whilst it makes a good headline it probably won't make a great deal of difference in the great scheme of reduced public sector expenditure.