A severance policy for Scotland: consultation

4 Severance policy for the devolved public sector

Scottish Ministers are seeking your views on whether better outcomes can be achieved for taxpayers, public sector employers and employees, by introducing a cap on exit payments, recovering exit payments for high earners and changing the way in which exit payments are calculated.

This section will go through each element of the UK Government's underpinning policy and offer you the chance to have your say.

Exit payment cap

4.1 Level of exit payment cap

An exit payment cap is a limit on the total cost of exit payments available to an individual leaving employment to a set amount. The UK Government is proposing a limit of £95,000.

Scottish Ministers can set the level of the exit payment cap and determine which payments would be included in that cap, as well as provide for relaxations, namely, circumstances where the cap can be waived.

Scottish Ministers are seeking your views on whether there would be a policy benefit in setting a standardised cap on exit payments and, if so, what level of cap would be appropriate, balancing best value with re‑shaping of services and flexibility to manage workforces. An exit cap would apply as a consequence of leaving employment to all existing and future employees of a devolved public body.

Question 4

Do you think it is necessary to set an exit payment cap for the devolved public sector? Yes / No

Please give reasons for your response.

If yes, do you think it should be set at the same level as per UK Government policy (at £95,000)? Yes / No

Please give reasons for your response.

If no, what level would be appropriate?

Please give reasons for your response.

4.2 Severance arrangements covered by a cap

The UK Government's proposals for an exit cap applies to all arrangements which determine an exit payment. These are:

• voluntary early severance / redundancy
• voluntary early retirement
• compulsory redundancy
• contractual arrangements and collective agreements

Question 5

Which of the following exit payment arrangements (included in the UK Government's exit payment cap proposals) should Scottish Ministers include in the event that a cap was to be introduced in Scotland for the devolved public sector? Please select all you think should be included.

• Voluntary early severance / redundancy
• Voluntary early retirement
• Compulsory redundancy
• Contractual arrangements
• Collective agreements

Please give reasons for your response.

Question 6

Are there any other exit payments situations where you think a cap should apply?

Please give reasons for your response.

4.3 Payments included in a cap

The Scottish Government is considering carefully whether pension 'top‑up' should be included in any future cap. Any cap which included this type of payment could potentially make exit payments less attractive to employees and tie employers' hands further in their ability to re‑shape workforces.

Exit payments included in the UK Government's exit payment cap are:

• Voluntary and compulsory exits
• Other voluntary exits with compensation packages
• Ex gratia payments and special severance payments (settlement agreements)
• Other benefits granted as part of exit process that are not payments in relation to employment
• Employer costs of providing early unreduced access to pensions
• Any form of pension 'top‑up'
• Payments or compensation in lieu of notice and cashing up of outstanding entitlements

Question 7

Which of the following exit payments (included in the UK Government's exit payment cap proposals) should Scottish Ministers include if a cap were to be introduced for the devolved public sector? Please select all you think should be included.

• Voluntary and compulsory exits
• Other voluntary exits with compensation packages
• Ex gratia payments and special severance payments (settlement agreements)
• Other benefits granted as part of exit process that are not payments in relation to employment
• Employer costs of providing early unreduced access to pensions
• Any form of pension 'top‑up'
• Payments or compensation in lieu of notice and cashing up of outstanding entitlements
• Other (please specify)

Please give reasons for your response.

4.4 Payments excluded from an exit payment cap

Under the UK Government proposals, compensation payments in respect of death or injury attributable to employment, serious ill health and ill health retirement would be excluded, as would payments made following litigation for breach of contract or unfair dismissal.

Question 8

Which of the following payments should Scottish Minsters exclude, if a cap were to be introduced in the devolved public sector? Please select all that apply.

• Death or injury attributable to employment
• Serious ill health and retirement and certain fitness requirements
• Litigation for breach of contract for unfair dismissal
• Compliance with an order of court or tribunal
• Other (please specify below)

Please give reasons for your response.

Exit payment recovery

4.5 Recovery of exit payments

Scottish Ministers are seeking your views on recovery arrangements, based on fairness and value for money, whereby former employers can recover exit payments made to employees who are subsequently re‑engaged in another public sector body within 12 months of leaving.

UK Government proposals for the recovery of exit payments (clawback) requires higher‑earning public sector employees or office holders to re‑pay exit payments on a tapered bases (for example: if nine months between posts, only 75 per cent of monies are recovered should they return to any part of the public sector). High earners are defined as those who earned over £80,000. This is not applied pro rata for part‑time employees.

Question 9

Should Scottish Ministers introduce a threshold for recovery arrangements for high‑earners in the devolved public sector? Yes / No

If yes, at what threshold should recovery arrangements be set?

• At £80,000
• Lower than £80,000
• Higher than £80,000

Please give reasons for your response.

Question 10

Over what time period should recovery arrangements apply?

• At 12 months
• Earlier than 12 months
• Beyond 12 months

Please give reasons for your response.

4.6 Payments to be included

Scottish Ministers could also determine what types of payments are included. Recovery payments included as part of the UK proposal include:

• those for loss of employment, including discretionary payments
• to buy-out actuarial reductions to pensions and
• severance payments

Question 11

Which of the following payments should Scottish Ministers include in the exit payment recovery arrangements, if introduced for the devolved public sector? Please select all those you think should be included.

• Those for loss of employment, including discretionary payments
• To buy-out actuarial reductions to pensions
• Severance payments

Please give reasons for your response.

4.7 Enforcement mechanisms

The UK Government proposals are that a former employer is entitled to take an individual to court to reclaim money. The new employer will be asked to consider dismissal if repayment arrangements are not made within three months of starting employment.

Question 12

Do you think that enforcement mechanisms should be introduced for the devolved public sector? Yes / No

Please give reasons for your response.

4.8 Relaxation process

Under the terms of the UK Government's proposals, in exceptional circumstances and in individual cases where an exit payment exceeds the cap, the default position would be that any relaxation of the cap would require the consent of Ministers. For devolved public bodies on the same basis, Scottish Ministers would approve the relaxation of the cap in individual cases. The same provisions would apply in respect of recovery.

The UK Government policy proposes that the full council take the decision on whether to grant a relaxation of cap in cases involving local government.

Question 13

If in the event of an exit payment cap and recovery should Scottish Ministers have: Please select all those you think should be included.

• The power to waive in exceptional circumstances
• Delegate the power to waive
• Delegation within a certain threshold

Please give reasons for your response.

4.9 Accountability and transparency

To ensure transparency and accountability of severance schemes and re‑engagement levels across the public sector, the UK Government's policy proposals suggest reporting of exit payments and recovery of exit payments in the annual accounts in each organisation.

Current practice in Scotland indicates that exit payments costs and savings are reported annually by local authorities as a result of the 2003 "Bye now, pay later?" Audit Scotland recommendation. Furthermore, local government exit payment costs are reported by Audit Scotland every year in Local Government in Scotland Financial Overview Report 2015-16.

Settlement agreements (defined as payments made to the employee outside the employer's basic statutory or contractual entitlement, on unplanned termination of employment) for those public bodies under the auspices of Scottish Ministers are scrutinised and reported in the Scottish Government's annual report to the Scottish Parliament. This demonstrates Scottish Ministers' commitment to operating openly and transparently, encouraging appropriate scrutiny of public sector operations.

All bodies across the devolved public sector are required to report exit payment activity in their annual accounts.

Question 14

Are there other forms of reporting you think would be helpful, across the devolved public sector in Scotland? Yes / No

Please give reasons for your response.

Exit payment terms

4.10 Changing exit payment terms

Scottish Ministers continue to work with devolved public bodies to consider how severance arrangements can best support maintaining high quality public services while addressing the challenges presented by current constraints on overall public expenditure. This context makes it essential that severance arrangements deliver value for money.

Scottish Ministers are seeking your views on the potential benefits of changes to exit payment terms to the devolved public sector in Scotland.

4.11 Changes to the exit payment tariff

An exit payment tariff is the method used to calculate an exit payment usually based on length of service and salary. Scottish Ministers can change the maximum tariff similar to that of the UK Government proposals: to three weeks' pay per year of service; cap the maximum salary on which the severance payment is based to £80,000; and to cap the number of months' salary that can be used when calculating exit payments to 15 months. Scottish Ministers could choose to set a different tariff.

Question 15

Do you think there would be value in changing exit payment tariff terms along the lines of the UK Government's proposals: Please select all those you think should be included.

• Three weeks' pay per year of service
• Maximum level of salary on which the payment is based to £80,000
• A ceiling of 15 months on the maximum number of months' salary that can be used
• Other alternative approaches (please specify)

Please give reasons for your response.

4.12 Payback period

Exit payment terms could be more affordable and benefit from being consistent across the wider public sector landscape. Payback period (how long it takes to re‑coup the costs of exits) is often used as an indicator of best value in exit payments.

Severance arrangements in devolved public sector bodies subject to the Scottish Public Finance Manual have to be broadly comparable with Civil Service Compensation Scheme terms which are currently 18 months. However, across the devolved public sector there is a broad range of payback periods in use. These range from 18 months to five years. Not all devolved public sector bodies are subject to the Scottish Public Finance Manual, for example, local government.

Question 16

What would be an appropriate payback period for exit payments, that balances affordability with operational effectiveness?

Please give reasons for your response.

4.13 Pension 'top‑up' payments

Some employers offer pension 'top-up' payments as part of severance arrangements. The UK Government policy proposals suggest that the cost of employer‑funded pension 'top‑up' payments can be minimised, for example, by limiting the amount of employer funded 'top‑up' payments for early retirement, or removing access to early retirements, but could be limited further by applying one or more of a range of restrictions:

• Cap the amount of employer funded pension 'top‑up' payments to no more than the amount of the redundancy lump sum to which that individual would otherwise be entitled
• To remove the ability of employers to make 'top‑up' payments altogether
• Increase the minimum age at which an employee is able to receive an employer funded pension 'top‑up', so that this minimum age is closer to or linked to Normal Pension Age

'Top‑up' payments for ill‑health, death in service and physical fitness could be out of scope.

Question 17

Should Scottish Ministers apply any of the following restrictions, for devolved public sector employers?

• Cap the amount of employer funded pension 'top-up' payments to no more than the amount of the redundancy lump sum to which that individual would otherwise be entitled
• Remove the ability of employers to make 'top-up' payments altogether
• Increase the minimum age at which an employee is able to receive an employer funded pension 'top-up', so that this minimum age is closer to or linked to Normal Pension Age
• Other (please specify)

Please give reasons for your response.

If none of the above, please give reasons for your response.