FCDO 2030 – Discretionary Exit scheme
Guidance from PCS pensions' officer for members in FCDO
Under the Civil Service Compensation Scheme (2010 terms) employers are permitted to run voluntary exit schemes (VES).
There are two conditions:
- Schemes are voluntary
- Those eligible to apply are not at risk of redundancy.
The employer has said that there is a general risk of redundancy under FCDO 2030, because there will be significantly fewer posts in the new structure, but the stage has not yet been reached where individual job holders have been displaced and designated as surplus. When that stage is reached the specific provisions of the Protocols for the Avoidance of Redundancy become engaged and must be followed. Until that point the employer has discretion over the terms if the two conditions listed above apply. FCDO communications make clear that the latest VES terms (designated as “discretionary exit”) are voluntary.
The unions have been contacted by members with questions about the latest exit scheme. While we cannot give financial advice, we can provide clarification about the terms and about your continuing contractual entitlement to voluntary redundancy (VR) should you be displaced in the FCDO 2030 exercise.
You retain your right to VR terms regardless of whether you apply for the VES currently referred to as “discretionary exit”.
The terms offered
The exercise offers the same tariff as under VR: one month’s pay for each year of service up to 21 months. The limit on overall monetary value is £262,185. The payment is tax free up to £30,000.
Terms which are not available
Under VR terms if you are over minimum pension age you are able to opt for early retirement, and access your pension benefits, including a tax-free lump sum of up to 25% of the value of your total pension account. This is not available because it would involve a pension calculation which includes the application of actuarial reduction as well as your options under the McCloud Remedy. Capita is unable to provide these calculations in the required time frame.
Tax issue
The first £30,000 of a compensation is tax free. Above this level it is taxed as income in the tax year in which it is paid.
If a compensation payment added £85,000 to a person’s taxable income in 2026/27 they would be taxed at the 40% higher rate on much more of their income in that year. They would also be at risk of liability to pay tax at the 45% additional rate on future earnings in that tax year. If the same person had been able to use cash compensation to buy-out the actuarial reduction and bring pension into payment now, rather than preserving it until normal pension age, they would benefit from pension income and these tax liabilities would not apply.