Areas That Can Increase The Loss Of Pension Rights
There are a number of areas of a pension loss calculation that should be examined in detail as these can increase the claim. These can be summarised as follows:
Pensionable Pay on retirement
Expected Pensionable Service and Pensionable Pay are the two key variables in the calculation of loss of pension rights.
Pensionable Service, the length of time that an individual is expected to work for until expected retirement is normally pre-determined by the facts of the case, ie when is the individual expected to retire?
With Pensionable Pay consideration should be given to the following factors:
- What is the definition of Pensionable Pay? Can we include allowances/overtime?
- Was the individual's actual Pensionable Pay on retirement affected by their accident, ie periods of absence prior to ill-health retirement?
- Are we aware of known pay increases since retirement (ie determining current Pensionable Pay)?
- Was the individual working on an incremental pay scale (ie set increases received each year)?
- Did the claimant have any promotion prospects before expected date of retirement?
Applying the correct deduction for Income Tax
This should be based on current Income Tax rates or known future Income Tax rates.
Consideration should be given to the claimant's marginal Income Tax rate at the date of retirement, ie allowing for other income at this date, such as State Retirement pension.
Widow/widower's annual pension benefit
The claim is for the loss of pension benefits in total arising from the pension scheme, which usually includes a spouse's pension on the date of death of the pension scheme member.
Losses only arise if the claimant is likely to pre-decease the spouse, thus activating the death benefits that will be paid to the spouse.
These death benefits will be based on the actual pension being received at the date of death of the claimant. As this is less than the expected pension a loss of widow/widower's pension arises.
The multiplier is usually calculated and adjusted for the spouse's entitlement (ie a percentage of full pension). This multiplier is then applied to the full annual pension loss.
Discount for contingencies
Based on case law. In the original Auty case a discount of 30% was applied for a period of 27 years which was approximated to 1% per annum (rounded to nearest percent, as was appropriate at this time).
It should be noted, however, that the Auty discount was applied when the appropriate multipliers were based solely on English Life Tables. At this time, a discount was needed to reflect mortality and its affect on the pension loss.
Ogden multipliers take account of mortality, therefore, a further discount is only needed for other factors.
The more recent House of Lords' decision in Page v Sheerness Steel Company Limited applied a discount of 10% for a period of 34 years, ie 0.294% per annum.
Appropriate credit for actual lump sum received
It is our opinion that the part of the lump sum (if any) that relates to an ill-health enhancement to Pensionable Service should be excluded. The argument for this is that such a one-off sum is received as a result of the contributions the claimant paid to the pension scheme, and it is, therefore, akin to insurance proceeds (see Bradburn v Great Western Railway Company) and should be ignored.
Following the House of Lords' decision in Longden v British Coal Corporation it has been decided that credit need only be given for that part of the lump sum which relates to the period post-expected retirement.
This is consistent with treatment of the annual pension being received by the individual in ill-health retirement. Credit for this annual amount only being given from the expected date of retirement.
In addition, it is our opinion that credit should be given for interest (based on the risk-free return) for the period from the date of actual receipt of this tax-free lump sum to the date of trial as the claimant has had the benefit of this sum earlier than expected.
Personal pension plans
- These are pension schemes into which individuals pay contributions themselves and, therefore, are not usually run by the employer.
- Frequently missed as not shown on a payslip as paid personally out of net income.
- Losses arise when individuals are unable to maintain their contributions. Also when individuals expected to increase their contributions prior to retirement but are now unable to do so.
- The result is a reduced pension fund on retirement, and, therefore, a smaller than expected annual pension and lump sum.
- Illustrations can be obtained detailing the expected fund based on expected contributions but for the accident. Alternatively, we have the expertise to recreate the expected fund and determine the expected annual pension and lump sum.
- The Auty method of calculation can be adopted to calculate the loss.
- If a separate pension calculation is to be prepared a deduction needs to be given for the claimant's net pension contributions in calculating the individual's claim for loss of earnings.
Fatal accident pension losses
- The pension loss can arise from either a personal pension plan (often missed) or an occupational pension scheme.
- Auty method of calculation can be adopted.
- Multipliers must be calculated at date of death as is the case with all fatal accident cases.
- No additional multiplier needed in respect of widow/widower's entitlement given this pension is already currently being received.
- Appropriate dependency percentages can be suggested and applied. Changes in the dependency percentage should be taken into consideration when children become non-dependent in the future (which can occur during retirement).
- Claims are usually substantial given that it is not necessary to give credit for the amounts that have been received by the dependants as a result of the death of the individual, ie the annual widow/widower's pension and death benefit lump sum. This follows from the case of Pidduck v Eastern Scottish Omnibuses Limited.
- In some cases a loss of State Retirement pension can arise (a loss that is often missed) and this can also be quantified.
Matrimonial loss of pension rights
Pension mis-selling
- This usually occurs when an individual has been incorrectly advised to cease contributions to an occupational pension scheme and to start a personal pension plan in it's place. It has been found that the benefits associated with occupational pension schemes are substantially greater (when compared to the cost of contributions) than for personal pension schemes. A loss, therefore, arises.
- Pension mis-selling can also occur when individuals are advised to switch between personal pension providers. The reason being that benefits received are lower than the costs of transfer.
- The Personal Investment Authority, as part of their best practice, will examine instances of possible mis-selling for individuals. However, these need to be quantified.
- We can quantify the potential lost benefits (based on the methods outlined above).
