Restriction of Public Sector Exit Payments Guidance 2020 Regulations

1. Introduction

The Restriction of Public Sector Exit Payments Guidance 2020 (the Guidance) forms part of the wider public sector reform agenda aimed at safeguarding public finances when employees leave the Civil Service or other public bodies. It sets out the rules that govern the payment of certain types of lumpsum benefits, such as termination payments, redundancy awards and postemployment compensation. The Guidance was introduced in response to concerns that large, unregulated exit payments could place undue pressure on Treasury resources and erode public trust.

2. Legislative Basis

The Guidance is grounded in several pieces of legislation:

• Public Sector Pension Act 2020 establishes the overarching framework for pension and severance arrangements.
• Finance (No. 2) Act 2020 provides the Treasury with powers to limit public expenditure on exit payments.
• Public Service (Management) Regulations 2020 sets out duties for senior managers in controlling exit costs.

These statutes empower the Cabinet Office to issue nonbinding but highly persuasive guidance that public sector organisations must follow.

3. Scope of the Guidance

The Guidance applies to:

• Civil Service departments and agencies.
• Nondepartmental public bodies (NDPBs) receiving central government funding.
• Local authorities that receive grantinaid from the Treasury.
• Joint entities where the public sector holds a majority stake.

It does not cover:

• Payments made under statutory entitlement that are already fully funded (e.g., statutory redundancy).
• Payments arising from privatesector contracts that are unrelated to publicsector employment.

4. Core Principles

4.1 Affordability

All exit payments must be affordable within the departments annual budget. Organisations are required to produce an Exit Payments Affordability Statement before authorising any lumpsum payment exceeding 10,000.

4.2 Transparency

Details of each payment, including the rationale and calculation method, must be recorded in the departments publicsector exit payments register. The register is published annually on the departments website.

4.3 Proportionate Treatment

The Guidance stresses that payments should reflect the employees length of service, grade, and the circumstances of departure. Arbitrary or preferential treatment is prohibited.

5. Types of Restricted Payments

5.1 Termination Payments

These are payments made when a contract is ended by the employer, usually due to misconduct or redundancy. The Guidance caps discretionary termination payments at 12 months salary for grades below senior civil servant (SCS) level, and 18 months for SCS and above, unless exceptional circumstances are demonstrated.

5.2 Redundancy Awards

Statutory redundancy payments remain unaffected. However, any enhanced redundancy award i.e., an amount above the statutory minimum must be justified against a riskassessment model that considers the impact on department continuity and morale.

5.3 PostEmployment Compensation

Payments for consultancy, advisory or secondment roles after leaving the civil service are permitted only if a conflictofinterest test is passed and the total annual amount does not exceed 5% of the employees final salary.

6. Approval Process

All exit payments above the thresholds specified in Section5 must follow a threestage approval process:

1. Initial Review The line manager forwards a request to the Human Resources (HR) Business Partner, who checks eligibility.
2. Financial Signoff The departments finance officer assesses affordability and records the payment in the Affordability Statement.
3. Executive Authorisation The Permanent Secretary or an delegated senior official signs off, confirming compliance with the Guidance.

For payments exceeding 100,000, a written justification must be submitted to the Cabinet Offices Public Service Pay Review Panel.

7. Monitoring and Reporting

Each department is required to produce a quarterly report that includes:

• Total value of exit payments authorised.
• Breakdown by payment type and employee grade.
• Any instances where the Guidance was not followed, with a corrective action plan.

The Cabinet Office publishes an aggregate summary for Parliament, enabling oversight and facilitating crossdepartmental benchmarking.

8. Consequences of NonCompliance

Failure to adhere to the Guidance can result in:

• Reimbursement of the unauthorised amount to the Treasury.
• Formal reprimand of the responsible senior official.
• Potential referral to the Public Accounts Committee for further investigation.

Repeated breaches may trigger a review of the departments governance arrangements under the Public Service Management Regulations.

9. Practical Tips for Departments

• Early Planning Incorporate exitpayment budgeting in the annual financial plan.
• Use the Calculator The Cabinet Office provides an online Exit Payment Calculator that flags any breach of caps before a request is submitted.
• Document Rationale Keep a concise justification file attached to each request; this simplifies audit trails.
• Training Ensure HR and finance staff receive annual refresher training on the Guidance.

10. Future Developments

While the 2020 Guidance is currently in force, the government has announced a review slated for 2025 to assess its impact on talent retention and publicsector finances. Potential amendments under consideration include:

• Introducing a flexible cap that adjusts for inflation and regional cost differences.
• Expanding the scope to cover temporary agency workers employed by public bodies.
• Linking exitpayment limits to performance metrics for senior managers.

Stakeholders are invited to submit comments during the consultation period, which will run for six months from the date of publication of the review paper.

11. Conclusion

The Restriction of Public Sector Exit Payments Guidance 2020 represents a significant step toward fiscal responsibility and fair treatment of publicsector employees. By setting clear caps, demanding transparency, and establishing a robust approval chain, the Guidance seeks to balance the need for competitive exit packages with the imperative to protect public funds. Ongoing monitoring, coupled with a scheduled review, ensures that the regime can adapt to changing workforce dynamics while maintaining public confidence.