The government is to introduce an exit payment framework which includes a maximum tariff for calculating exit payments of three weeks’ pay per year of service and a ceiling of 15 months on the maximum number of months’ salary that can be paid as a redundancy payment.

Set to come into force from October 2017, the maximum salary on which an exit payment can be based is set at £80,000 and there is a taper on the amount of lump sum compensation an individual is entitled to receive as they get closer to their normal pension retirement age.

The government is also taking action to limit or end employer-funded early access to pension as an exit term.

These reforms will apply to the majority of the five million public sector workforce, including civil servants, teachers, NHS workers, local government workers, armed forces personnel, police officers and firefighters.

The public consultation on the framework ran from February to May and received 350 responses, from unions, public sector employers and employer organisations among others, the majority of which opposed the plans.

In its published response on the consultation outcome, the Treasury says that if applied across the public sector workforces, the maximum upper limits on exit scheme terms would ‘strike a balance between fairness to public sector employees and fairness to the taxpayer that funds exit payments’.

The response states: ‘In particular, the government has not seen evidence to change their view that applying upper limits across the different elements used to calculate exit terms in the public sector would make public sector exit terms fairer, more modern and more consistent.

‘The responses to the consultation strengthened the government’s view that the most appropriate way of taking forward these reforms was for the departments responsible for the different public sector workforces to seek to reach agreement on packages of reforms appropriate to those workforces, within an overall, centrally-set framework.’

The Treasury argues that applying these upper limits across the schemes would mean there was greater consistency between the schemes, and would bring public sector terms more in line with exit terms more commonly available in the wider economy.

As part of an overall package, the government will consider proposals appropriate to each workforce. This will include proposals to cap the amount of employer funded pension ‘top ups’ to no more than the amount of the redundancy lump sum to which that individual would otherwise be entitled, and to remove the ability of employers to make such top ups, or offer greater flexibility to employers to determine the specific circumstances in which they would be available.

There are also plans to increase the minimum age at which an employee is able to receive an employer-funded pension top up, so it is closer to or otherwise linked more closely with the individual’s normal pension age in the scheme in which they are currently accruing pension benefits or to which they would be entitled to belong if they were accruing benefits.

The government says it expects departments to put forward proposals for reform within three months of the publication of this response. Departments should then consult as appropriate, with the aim of making the necessary changes within nine months.

In the rest of the UK, each devolved nation will be able to set local policy on treatment of redundancy payments and payment caps across the public sector for devolved bodies and workforces.

Consultation outcome: reforms to public sector exit payments is here