Basic Auty Calculations Explained
The key issues when preparing calculations for loss of pension rights, adopting the Auty method (Auty v National Coal Board), can be summarised as follows:
Case law
Loss of pension right calculations in both personal injury and fatal accident calculations very much follow case law in the way the actual loss is calculated.
The key issue that arises in most pension cases is that the calculation must be based on the expected date of retirement but for the accident (not the actual date of retirement or current expected date of retirement).
Calculate the actual annual pension loss
- Expected annual pension on retirement less the actual pension currently being received.
- Deduct Income Tax at the claimant's marginal rate.
Apply the appropriate multiplier
This is the multiplier for the period of which the claimant was expected to receive his annual pension, ie from expected retirement to expected date of death. An adjustment for a widow's or widower's entitlement should also be included (see later).
Calculate the loss of lump sum
The tax-free lump sum expected on retirement is calculated.
This sum is discounted back to the assumed date of trial to determine its present value as it would not have been received until the expected date of retirement.
Discount for contingencies
Ogden multipliers take account of mortality but there are other factors which may have caused the individual to not have increased his Pensionable service to the expected date of retirement in any event, eg change of employer or redundancy etc.
These discounts generally follow case law
Appropriate credit for lump sum
As with giving credit for annual pension appropriate credit needs to be given for the tax-free lump sum (if any) received on retirement.
