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					              PERSONNEL COMMITTEE – 4TH JANUARY 2007

                 Report of the Director of Change Management

ITEM 4          REVISED SEVERANCE POLICY

Purpose of Report

To seek approval for revised severance arrangements.

Recommendations

1.       To approve the revised severance arrangements as set out in the policy
         attached at Appendix 1.

2.       To approve adoption of these arrangements with effect from 15 January
         2007

Reasons

1.       To ensure fair and equitable severance arrangements for employees whose
         employment is terminated on the grounds of redundancy and of early
         retirement in the interests of the efficiency of the service in line with
         requirements of the Local Government (Early Termination of Employment)
         (Discretionary Compensation) (England and Wales) Regulations 2006 and the
         Age Regulations.

2.       To establish a date from when these new arrangements will apply and to
         allow sufficient time to notify employees.

Policy Context

To meet the key corporate objective of being “An excellent Council” by ensuring
that we reconsider our severance policy in the light of changing legislation.

Background

In June 2006 the Government issued a consultation paper on proposals to revise the
powers available to local authorities to make discretionary one-off lump sum
payments or award compensatory added years to employees where their
employment is terminated early. The final regulations have now been published and
came into force on 29 November 2006 with a retrospective effect from 1 October
2006. This change is to ensure that the scheme complies with the new Age
Regulations also effective from 1 October and has the effect of making aspects of our
current Severance Policy illegal.    The current Severance Policy is attached at
Appendix 2.

Government Regulations – Key Features

1.       The new regulations have the following effect:

         Replace the current compensatory formula, which provides a maximum
         payment of 66 weeks’ pay based upon age and length of service with a

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       discretionary power to award compensation to eligible employees up to a
       maximum of 2 years’ pay (104 weeks). Subject to the 104 weeks maximum,
       the draft regulations do not restrict the way in which any award is awarded.

       Remove the power to award added years although additional membership
       can still be awarded through the augmentation provisions in the LGPS
       (Charnwood does not currently subscribe to an augmentation scheme.)

       Retain the discretionary power to waive the pay ceiling placed on statutory
       redundancy payments and to calculate on pay up to the actual week’s pay.

2.     The proposals apply in cases where a person’s employment is terminated by:

       Reasons of redundancy.
       In the interests of the efficiency of the Service
       In the case of a joint appointment (there are no instances at Charnwood).

3.     There is a requirement for local authorities to publish a revised policy on
       how it will exercise its discretion. The new policy can be implemented
       immediately, although with any subsequent changes, there is the requirement
       to give 1 month’s notice.

4.     It is important that any changes made comply with the Age Regulations and
       do not discriminate on the grounds of age or length of service.

5.     A specific exception to the Age Regulations allows an employer to pay
       enhanced redundancy payments calculated using both age and length of
       service to all employees or only to those with two or more years’ service.
       To come within the exception, the payment must be based on the statutory
       redundancy payment calculator. The calculator allows for the maximum
       payment to be made to employees aged 61 and over and with 20 years’
       service. Any multiplier could be employed against this calculator to a
       maximum of 104 weeks. This could be done this simply by multiplying the
       existing calculator by a figure up to a maximum of 3.46, which would give the
       maximum 104 weeks pay (the calculator allows for a maximum of 30 weeks
       pay). If a formula, not based on the above was used, this would have to be
       justified under the Age Regulations.

6.     The exception in the Age Regulations only applies to redundancy payments.
       Therefore, for retirement in the interests of the efficiency of the service, any
       enhanced payments would have to be justified under the Age Relations.

Proposed Changes

Redundancy:

1.     That redundancy payments are made using a multiplier based on the
statutory formula. The calculator allows for an increase in the number of week’s
redundancy pay based on age and years service (up to a maximum of 20 years
service).

Reason - This is the current legislative requirement and is allowable under the draft
regulations. It enables an element of recognition for loyal service and of the

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increased difficulty of the older worker in finding alternative employment. The
difficulty of using some other formula would be the ability to objectively justify these
on a non age or service related basis.

2.      That a multiplier of 2 be applied to the calculator. This would give a
maximum payment of 60 weeks. Some examples of the cost of this proposal and
alternatives are given below.

Reason - This is affordable and would help to balance the potential increase cost to
the Council of redundancy payments for the younger employee against a potential
reduction in costs for older employees who are members of the Local Government
Pension Scheme and who would have benefited from the awarding of added years.

3.     That the redundancy payment be based on an actual week’s pay.

Reason - This is current Council policy and there does not appear to be a compelling
reason to change this.

4.     Allow employees the option of converting the cash sums, in excess of any
statutory redundancy payment into a period of membership in the LGPS. The
amount of pension scheme membership purchased by the cash sum would vary
depending on the pension circumstances of the employee and this would be
allowable on actuarial grounds.

Reason - The option would be at no additional cost to the Council but would enable
employees to have some flexibility in the use of their redundancy payments.

5.     That the Council continues to only recognise service accrued with members
of the modification order. Recognition is a requirement for any authority taking
advantage of the enhanced.

Reason:

This is the Council’s current practice and ensures that the Council does not accrue
costs for additional service when there is no requirement to do so.

Retirement in the Interests of the Efficiency of the Service

1.      That no enhancement be given for retirement in the interests of the
efficiency of the authority.

Reason:

To avoid the problems of finding a formula that is fair and affordable and is not age
discriminatory. Employees who are members of the Pension Scheme would already
receive an unreduced early payment of pension, the cost of which would be borne
by the Council.

Approach Taken By Other Authorities

Other Councils in the East Midlands have been contacted to assess whether
Charnwood’s approach is compatible with that of others. The majority of Councils
who responded have not yet formally considered their new policy but indications are

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many are also considering using the statutory calculator with a multiplier of x2. One
Council is considering not providing any multiplier. In addition, the majority of
authorities who responded are seriously considering not granting any additional
enhancements for Retirement in the Interests of the Authority.

Trade union Comments

The trade unions have been consulted and their comments will be reported at the
meeting.

Financial Implications

Elected Members had indicated that the new scheme should be broadly similar in
cost to the existing scheme. However, the financial implications of the revised policy
will depend on the circumstances of the employee affected by it. In general younger
employees with less service will do better under the revised scheme than the
existing scheme and older and longer serving employees will do less well. This is
inevitably the consequence of the removal of added years which had the effect of
compensating older employees disproportionately well. Some examples are given
below:

Examples

Examples of Payments under the Severance Policy (for Redundancy)

The following examples are the redundancy cost for 3 employees of different ages
and length of service, all of whom are members of the pension scheme. These
examples have been chosen as they represent the differing entitlements of
employees in terms of pension and redundancy entitlements under the existing
scheme. Actual salary has been used and this is £400 per week (c£21,000 per
annum). The schemes shown are:

   1. Current.
   2. Using the statutory calculator, and actual week’s pay and a calculator x1.5.
   3. Using the statutory calculator, and actual week’s pay and a calculator x2.
   4. Using the statutory calculator, and actual week’s pay and a calculator x 2.5.
   5.
Employee aged 30 with 10 years’ service.

   1.   9 weeks x £400 = £3600
   2.   13.5 weeks x £400 = £5400
   3.   18 weeks x £400 = £7200
   4.   22.5 weeks x £400 = £9000

Employee aged 51 with 15 years’ service.

   1.   20 weeks x £400 = £8000
   2.   30 weeks x £400 = £12000
   2.   40 weeks x £400 = £16000
   3.   50 weeks x £400 = £20000

   Nb This employee will be in receipt of a pension.


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   Employee aged 55 with 25 years’ service. .

   1. 27 weeks x £290 (statutory maximum) = £7800. Plus estimated capital cost of
      added years £24,100. Total £31900
   2. 40.5 weeks x £400 = £16200
   3. 54 weeks x £400 = £21600
   4. 67.5 weeks x £400 = £27000

   Nb This employee will be in receipt of a pension.


Therefore, if Charnwood were to make the above notional employees redundant,
the cost to the Council (excluding the cost of early payment of pension) would be as
follows:

Existing scheme                  £43500
Using a multiplier of x 1.5      £33600
Using a multiplier of x 2        £44800
Using a multiplier of x 2.5      £56000

Risk Management

List financial implications in table below or state that ‘No specific risks have been
identified with this report’.

     Risk Identified      Likelihood      Impact     Risk Management Actions Planned
That the cost of the                               The risk could be managed by limiting
new severance policy      Medium       High        the number of instances of
is unaffordable.                                   redundancy (where this is possible)
                                                   and RIES and by ensuring that the
                                                   multiplier is affordable.
Not changing the          High         High        Introduce a new Severance Policy as
severance policy or                                soon as is reasonably practicable.
delaying the change
would mean that we
could face legal
challenge and would
create uncertainty for
employees affected.


Background Papers: The Local Government (Early Termination of Employment)
(Discretionary Compensation) (England and Wales) Regulations 2006.

Officer to contact:      Jane Brinklow Tel 01509 634606
E-mail address           jane.brinklow@charnwood.gov.uk




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                     Appendix 1 Draft Severance Policy

SEVERANCE POLICY

1.    Introduction

      The purpose of this policy is to provide fair and equitable compensation to
      employees who leave the Council’s employment either through redundancy
      or in the interests of the efficiency of the service and, at the same time,
      ensuring that legislative requirements are met and the burden placed on the
      public purse is reasonable.

2     Early Retirement in the Interests of the Efficiency of the Service

2.1   Early retirement at the instigation of the Council can only apply to employees
      who are aged between 50 and 65 and who are members of the Local
      Government Pension Scheme (LGPS).

2.2   This arrangement is aimed at individual employees who, whilst having given
      valuable service in the past, are no longer deemed capable of doing so. The
      situation may arise from an employee being unable to cope with the new and
      expanding duties being placed on him or her. The decline in an employee’s
      ability to perform the duties of the post may be exacerbated by ill health but
      this arrangement is unlikely to apply in cases of long term absence due to ill
      health. This arrangement will not apply where it is deemed that it is more
      appropriate to deal with an individual’s ability or willingness to perform under
      the Capability or Disciplinary Procedures. The decline in an employee’s
      ability to perform the duties of the post due to domestic circumstances and
      ill health retirement are dealt with separately.

2.2   Employees who meet the requirements under 2.1 are entitled to an
      immediate and unreduced pension based on their reckonable service. The
      cost of the early payment of pension will be borne by the Council.

2.3   The application of this arrangement is entirely at the discretion of
      Charnwood Borough Council and will be with the consent of the employee.
      It will only be considered as a last resort.




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4     Redundancy

4.1   Redundancy covers a particular set of circumstances covered by the
      (Employment Rights Act 1996 Section 139 (1). A redundancy occurs where
      the employer requires fewer or no people to undertake work of a particular
      kind. This includes situations where the employee’s job has changed so
      significantly that the employer considers that the employee is unable to meet
      the new requirements of the job and there is no suitable redeployment
      opportunity. Redundancy situations could occur as part of a restructuring of
      a service area or where there is a loss of funding resulting in the termination
      of a contract.

4.2   Employees who are dismissed on the grounds of redundancy, and who have
      been continually employed for two years or more by members of the
      modification order (this covers employment within local government and
      some other employers), will receive a redundancy payment. The payment is
      based on the statutory formula with a multiplier x2 applied (see attached
      chart). The calculator allows for a number of weeks’ redundancy pay based
      on age and service (up to a maximum of 20 years’ service). The maximum
      number of weeks’ redundancy pay an individual can receive is 60 weeks. A
      week’s pay is deemed to be an actual week’s pay rather than the statutory
      maximum.

4.2   Employees who are aged 50 and over and who are members of the LGPS are
      entitled to an immediate, unreduced pension based on their reckonable
      service. The cost of the early payment of pension will be borne by the
      Council.

4.3   Employees have the option of using their redundancy payment, in excess of
      statutory redundancy payment, to purchase a period of membership in the
      LGPS. The amount of pension scheme membership purchased by the cash
      sum would vary depending on the age of the employee and the number of
      year’s service. Employees should seek advice from the Pensions Department
      at Leicestershire County Council.

6.    Local Government Pension Regulations

6.1   An employee is not eligible for compensation where this is in breach of the
      Local Government Pension regulations or any other legislative requirements..
      The compensation arrangements listed above may be amended from time to
      time and will be amended in the light of any future changes brought into
      effect as a result of future legislative requirements.


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