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Restrictions on Local Government Pension Scheme Public Sector Exit Payments

By Mark Radford

Invicta Law’s Mark Radford looks at two new pieces of legislation the Government is in the process of introducing in an attempt to reduce its costs.

Under the Local Government Pension Scheme (LGPS) Regulations, employees who are members of the scheme and who are aged 55 and over are entitled to (in the case of redundancy and efficiency dismissals) a redundancy payment based upon their actually weekly wage and to, in both scenarios, immediate access to their pension without an actuarial reduction.

The fact that there is no actuarial reduction to the pension places a strain on the LGPS fund, which under the LGPS Regulations must be met by the employer.

For some time, the Government has been concerned about the overall cost of these payments and in an attempt to reduce these costs, it is in the process of introducing two new pieces of legislation.

The Exit Regulations

The first of these is the ‘Restriction of Public Sector Exit Payments Regulations 2020’ (the Exit Regulations), which are due to come into force on 4th November 2020 (5 days before the deadline for the consultation on the topic of exit payments closes).

The Exit Regulations purports to limit the overall cost of LGPS public sector exit payments to £95,000. It does not amend the LGPS Scheme Regulations, as it cannot take away entitlements that exist under those Regulations and so it effectively says that local authorities must make the payments even if they do exceed the limit.

The Exit Regulations do, however, suggest that if the total cost of the Regulations exceeds £95,000 then the additional cost should fall upon the LGPS pension fund. This is a strange outcome if the purpose of the Regulations is partly to protect the LGPS fund.

The Early Termination Regulations

The second piece of legislation which is subject to consultation, is the draft Local Government Pension Scheme (Restriction of Exit Payments) (Early Termination of Employment) (Discretionary Compensation and Exit Payments) (England and Wales) Regulations 2020 (The Early Termination Regulations).

The Early Termination Regulations are designed to deal with the failings in the Exit Payment Regulations by amending the LGPS to make it unlawful for an exit payment paid by a public body to exceed £95,000.

The Early Termination Regulations attempt to do this in a number of alternative ways, such as removing the right to a redundancy payment and the immediate payment of an actuarially reduced pension or by passing the cost of the strain upon the LGPS from the employer to the employee. It seems to be the Government’s intention to introduce the Early Termination Regulations in December.

Moving Forward

Both sets of Regulations and the consultation exercise surrounding them are currently subject to pending judicial review proceedings by the BMA, by Lawyers in Local Government, the Association of Local Authority Chief Executives and others, on numerous grounds covering the full judicial review spectrum of irrationality, illegality and procedural impropriety. It will be interesting to see whether either of these Regulations will ever actually become law.

Invicta Law’s Dispute Resolution and Employment team can assist with advice in respect of pensions including the Local Government Pensions Scheme. We provide pragmatic solutions for clients and add value by delivering high quality legal advice. Contact us on 03000 419709 or email justine.soutter@invicta.law for more information.

Contents of this article are intended for general information purposes only and shall not be deemed to be, or constitute professional or legal advice. Invicta Law cannot accept responsibility for any loss as a result of acts or omissions taken in respect of this article.


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