What is the exit payment cap?

Last updated: 15 Feb 2021

The public sector exit payment cap was an overall limit to the amount that an employer could pay to an employee, or to a pension scheme in respect of that employee, when they left their employment.

The cap was set at a level of £95,000 and there was no index-linking of this amount or any mechanism to automatically increase this figure. In effect this meant that the value of the cap would decrease each year and more people would be subject to it.

The Restriction of Public Sector Exit Payment Regulations 2020, SI 2020/1122, were made on 14 October 2020 and come into force on 4 November 2020.

Several trade unions, including Prospect, had challenged the legality of the exit payment cap and permission for a judicial review of the regulations was granted with a hearing due to take place in March.

On 12 February 2021, HM Treasury published revised directions and guidance that immediately disapplied the cap and the regulations will be formally revoked in due course.

The government stated in the guidance that “After extensive review of the application of the Cap, the Government has concluded that the Cap may have had unintended consequences and the Regulations should be revoked. HMT Directions have been published that disapply the Cap until the Regulations have been revoked.”

If a member’s exit payment was restricted in the time that the cap was in force, they should now receive the amount they would have received had the cap not been in place. If you are in this situation, please contact Prospect for assistance.

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