Compensation for loss of pension rights: A consultation paper

The President of the Employment Tribunals has published a consultation paper which outlines proposals for the calculation of pension loss on termination of employment, now that the Purple Book has been withdrawn.

A Working Group of Employment Judges has produced the attached consultation paper in response to the need identified by Lord Justice Underhill in Griffin v Plymouth Hospital NHS Trust [2014] IRLR 962, to review the 2003 booklet 'Compensation for Loss of Pension Rights: Employment Tribunals' in order to reflect recent changes in pension law and practice.

The 2003 booklet was produced with significant assistance from the Government Actuary's Department but no funding is currently available to support their continued involvement. In these circumstances the decision was made by both Employment Tribunal Presidents to establish a Cross Border Judicial Working Group. The Working Group now wishes to consult a wide range of Employment Tribunal system users and specialist practitioners in the pensions field before finalising revised guidance in this highly technical area.

The consultation is proceeding in parallel in England and Wales and Scotland, given that the Working Group is a joint enterprise between the two jurisdictions.

The closing date for the consultation is 20 May 2016.

Brian Doyle, President

Shona Simon, President

Editors note

It is important to note that this document and the proposed Presidential guidance would not have statutory force and the parties would still be free to submit that other approaches should be adopted - the tribunal would consider such submissions on their merits. The purpose of the paper is simply to set out the approach the tribunal would propose to adopt in both simple and complex pension loss cases, with a view to assisting the parties in presenting their respective cases (and, in particular, in evaluating the potential value of pension loss) and with a view to assisting Employment Judge and non-legal members in adjudicating on such cases.

The closing date for any comments on the consultation paper is 20 May 2016 and should be sent to: [email protected]

The main proposal have been set out below but you can read the full text of the consultation paper here.

State pension

The tribunal will operate the following default assumptions:

* claimants will retire at state pension age; * claimants will suffer no loss to their state pension; * claimants will suffer no loss of additional state pension rights (such as loss of S2P); * claimants will suffer no loss by reason of losing the facility to make employee contributions (including AVCs).

The onus will be on the parties to persuade the tribunal to depart from these assumptions.

Loss of pension for DC schemes

The default method of assessing pension loss will be the contributions method i.e. assessing the loss of employer contributions (but not employee contributions). The employer contributions will be based on the mandatory contributions the employer has to make under the auto-enrolment scheme (even though not all employers will be operating under this scheme until 2018). It will be assumed that the claimant has been auto-enrolled into a pension scheme and has not opted out, and that the claimant has been auto-enrolled into a pension scheme in the new job and has not opted out. In the context of assessing future pension loss, the claimant would need to give credit for employer contributions from a hypothetical future employer at the mandatory minimum level.

The claimant would need to persuade the Tribunal of any shortfall in the old pension contributions compared to the new one, for example if the old pension scheme paid in more than the mandatory auto-enrolment contributions and the new job only operated auto-enrolment.

Loss of pension for DB schemes

There will be 2 methods of calculation for simple cases and complex cases (analogous to the old simplified and substantial approaches). Complex cases are expected to be very rare.

Simple cases Here there will be reliance only on the contributions method, meaning no award for loss of enhancement of accrued pension rights with no loss beyond the start of new employment if the claimant benefits from a similar DB pension scheme. However if the new scheme is a DC scheme, the Tribunal will adopt the same assumptions about auto-enrolment as set out in relation to DC schemes.

*Complex cases *If it is identified at an early stage of the proceedings that pension loss is likely to be significant, there will be a split liability/remedy hearing. If the claimant succeeds at the liability hearing, there will be a 2 stage remedy hearing.

The first stage will determine the non-pension loss award(s) and attempt to agree a figure for pension loss.

The second stage (assuming no agreement at the first stage) will consider 2 approaches:

*First approach - Ogden tables *This would apply in most of the very small number of "complex" cases, and would involve the application of the Ogden tables and a discount rate of 2.5%.

*Second approach - actuarial evidence *This approach would apply even more rarely and would involve use of expert actuarial evidence. The tribunal, in consultation with the parties, would make directions for such expert evidence, with the strongly preferred approach being a jointly instructed expert.

Published: 30/03/2016 13:12