Lost pension rights can be a key part of the compensation awarded by Employment Tribunals to successful ‘wrongful dismissal’ or ‘discrimination’ claimants. Guidelines used to assess the value of these lost pension rights, which were last updated in 2003, are now being consulted upon.    

What are the guidelines for?

The guidelines were first published in 1991 to help to assess the loss of pensions rights linked to a claimant’s defined benefit and defined contribution benefits. Although the guidelines were not compulsory, if parties wished to use their own approach to asses such benefits, additional costs would need to be incurred to satisfy a requirement for expert actuarial advice.

So why change now?

Changes to funding and growing dissatisfaction with the guidelines meant change was inevitable.

The guidelines had incorporated actuarial assumptions developed by the Government Actuary’s Department (GAD) for calculation purposes. However, no further funding was made available for GAD to continue to be involved.

Comments from Underhill LJ, requesting the guidelines be updated,[1] further underlined the need for change. A working group was then convened by the Employment Tribunal Presidents responsible for tribunal procedures in England, Scotland and Wales to look at this issue. The consultation paper [2] is the result of this group’s deliberations.

So what changes are proposed?

Broadly, the old guidelines set out a ‘contributions method’ for defined contribution benefits and a ‘simplified’ and ‘substantial loss’ methodology applying to calculations for defined benefit cases.

The paper proposes that this methodology be replaced by the ‘simple cases’ approach which could cover both defined benefit and defined contribution cases and the ‘complex cases’ approach which would replace the ‘substantial loss’ methodology. However, the paper anticipates that the ‘complex case’ approach would only be used rarely.

Whilst the details of the approaches are beyond the scope of this blog, the material differences in the two approaches are such that the paper recommends a preliminary telephone hearing to identify the correct approach at an early stage.

A number of default assumptions will also be adopted by Employment Tribunals in agreeing the loss relating to successful claimants including retirement at state pension age, no loss to state pension and various automatic enrolment assumptions unless the claimants can persuade the Tribunals otherwise.

Comment

The updating of the guidance in this area is long overdue and is to be welcomed.

Pensions has developed considerably since 2003 with changes to pensions tax post ‘A-day’, automatic enrolment, state pension, contracting out, accessing pensions and changes in public sector schemes from Final Salary to Career Average.

It is hoped that the result of this consultation, which closes on 20 May 2016, will be a simpler, more efficient and more effective process for calculating pension loss.

This post was contributed by Suresh Bhatt. For more information, email blogs@gateleyplc.com.

[1] Compensation for Loss of Pension Rights in Employment Tribunals- a Consultation Paper

[2] Griffin v Plymouth Hospital NHS Trust [2014]


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This blog is intended only as a synopsis of certain recent developments. If any matter referred to in this blog is sought to be relied upon, further advice should be obtained.