From April last year, it became compulsory for every employer in the UK to set up and contribute to a workplace pension scheme for all employees in its service. With this dramatic change to the pensions landscape, the need for a detailed pension loss report as part of every personal injury claim featuring a loss of earnings element became even more vital.
In practice, the new law means that every single employed person in the UK should now be a member of a pension scheme, unless they have specifically opted out, thus any claim for loss of earnings resulting from an accident, particularly one which may cause a long period of worklessness, should also include a pension loss element.
Types of pension
There are numerous different types of pension scheme available to the modern worker, but they can roughly be broken down into two types – the Defined Benefits (DB) schemes and the Defined Contributions (DC) schemes.
The former is the gold standard, and understandably so. Also commonly known as a “final salary” scheme it provides income to a retiree as a percentage of their salary at retirement. These were particularly popular among public sector employers, but are increasingly hard to come by in the modern era. They are very expensive to operate, and even where they do still exist many employers are regularly trying to shift them over to a “career average” model – still expensive to run, but less so than a final salary model as the payments are based on an employees average salary over their career (the career average model also helps mitigate certain well-known public service tricks of the trade, such as police officers opting to stay at the level of sergeant, with guaranteed overtime, rather than take the additional responsibility of promotion, then suddenly having a change of heart at the twilight of their career to bump up their final salary for retirement).
The second type, increasingly in favour since employers became legally required to offer pension schemes, sees contributions paid into an investment fund by the employer and/or employee. The fund accumulates at a rate depending on the investments in it, and profits are converted into an annuity and/or lump sum at retirement. This can be a particularly complex area to agree on since there is no crystal ball currently available to claimants to tell them how their investment would have performed over the next 30 years had their accident not-curtailed their contributions.
But do I need advice?
There is still a school of thought among some that a pension loss report is something a claimant’s legal team can handle, particularly in a world where online calculators can enhance the old-fashioned “scribbled on a beer mat” school of loss calculation.
In reality they can’t, or at least they shouldn’t. The legal team are there to handle the legal side of proceedings, and it is neither reasonable, nor realistic, to expect them to simultaneously keep abreast of the latest changes to government-backed schemes, the tax implications of lump sum v annual income payments, the possibility that a claimant may be a member of multiple sections of a pension scheme, or multiple pension schemes, the availability of tax relief on hypothetical future pension payments, and much more.
As the number of pensions among potential claimants expands exponentially, so the complexity of the pensions landscape expands in direct proportion, and expert advice should be sought accordingly.
The only situations in which a pension report should potentially not be considered as essential are
*If the claimant was already retired and in receipt of pension benefits when the accident took place.
*If the claimant has found alternative employment with more attractive pension benefits since the accident.
*If the claimant was not a member of any pension scheme prior to the accident, and it can be proved that they would not have become a member of one in future. Given the obvious difficulties in achieving this, it can probably be reasonably assumed that that a pension loss report should be prepared in any case.
Also worth considering
It’s also worth noting, for those that may still think that the online calculator is their friend, that failure to employ an expert witness and present a detailed pension report can lead to claims of professional negligence if a claimant feels that their interests have not been best served. Anecdotally, it’s been noted that this is an area being heavily targetted by the growing army of professional negligence “specialists” on the high street.
Relying on an expert witness for your pension loss report shouldn’t just be about covering your own back though. You want the best outcome for your client, and in an area as complex and multi-faceted as this it seems common sense to let an expert in the field consider the variables and do the maths.