Pensions - Articles - Exit pay proposals may mean pension cuts for civil servants

Public sector members of the Local Government Pension Scheme aged 55+ who are made redundant and want to retire early will face a significant cut to their benefits, if changes proposed in the Government’s exit pay consultation are implemented, Hymans Robertson warns.

 They have looked in detail at the implications of the exit pay consultation and found that there was ambiguous wording which has an unexpectedly wide-ranging impact on LGPS members. Alongside the well-trailed proposed new rules relating to a £95,000 cap on exit payments, there are surprising changes which will affect all LGPS public sector members on redundancy, regardless of how much they earn. It also adds yet more layers of complexity to local authority funds that are already grappling with the significant administrative changes arising from the McCloud ruling. Under the proposals, any public sector member retiring on redundancy grounds with unreduced LGPS benefits will receive no discretionary severance payment and will have to pay the fund a sum equal to their statutory redundancy payments.

 Commenting on the increased complexity Ian Colvin, head of LGPS benefit consultancy, argues: “The latest changes to the early retirement package will impact many more local authority staff members, already at risk of redundancy due to Covid, and heighten the uncertainty the pandemic has brought. This will impact a huge array of employees already struggling and will impact across the board, not just those at the top or on the highest salaries. The guidance and methodology lacks clarity. It is imperative that this is rectified as soon as possible to minimise the disruption to funds and employers (particularly English local authorities) impacted by these changes.”

 Explaining the implications, Douglas Green, partner and LGPS actuary at Hymans Robertson, adds: “Cases that are currently ongoing where councils are trying to arrange for headcount reduction, need to be able to tell employees who are being made redundant what benefits they will get, in order to allow forward planning and personal financial implications. As it stands members will lack any real certainty. Pensions and HR teams will be under enormous pressure to ensure employees understand the difficult decisions that must be made, without giving advice.

 “The exact choice of detailed guidance, awaited from MHCLG and the Government Actuary’s Department, will affect how much pension members will lose if they don’t give up their Statutory Redundancy Payment. It will also affect which members’ packages are caught by this £95k cap and which aren’t. In the absence of this information, it is impossible to provide the duty of care to employees facing redundancy and provide accurate assistance about the impact this will have.”

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