A perfect storm of activity has pushed Pension Loss calculations firmly onto the agenda for personal injury and clinical negligence claims, leading us to see a rise in the number of Pension Loss report instructions, as Vitek Frenkel FCA, Partner, Frenkels Forensics, writes.
The phasing out of the traditional and hugely valuable ‘final salary’ schemes for public sector and private sector businesses struggling to cater for high value pension payouts, is on the rise and making headlines. Strikes across the country are increasingly linked to pay and pension changes (or causing national headlines, such as the latest Royal Mail announcement), that also have an unavoidable impact on Pension Loss reports.
The Workplace Pension – a money purchase scheme – has been phased in to larger employers since 2012 and is now going to be compulsory for all employers from April onwards. This scheme requires employers and employees (assuming the latter does not opt out) to pay into a money purchase pension scheme, helping to relieve the government’s state pension burden. As every employee, now and in the future is likely to be a member of their employer’s scheme, Pension Losses reports will need to be considered for many claims that previously would not have required this.
In the last 12 months we have seen how the complexity and individuality of each claim and its related quantum – particularly for fatal accident claims (more on which later) – has led to the need to prepare Pension Loss reports. However, we have also seen a number of misconceptions about how reports in fatal accident claims are to be prepared and, in some cases, potential missed opportunities to include a Pension Loss. This is a concern considering the appetite to launch professional negligence claims against solicitors.
We thought we’d start 2017 outlining the impact of the Pension storm elements and advising all litigators preparing or defending claims for damages. As Claimant practitioners will be looking to include Pension Loss calculations in their claim for damages, so too will Defendant practitioners need to check that these calculations are correct.
The CARE shift
Employees very much desire the final salary scheme for reasons we can all appreciate. Based on a multiplier of length of service, annual salary upon retirement and an accrual rate, the scheme is the gold standard for individuals but an increasingly heavy burden for employers. When companies such as Royal Mail struggle, the first thing to change is very often the pension plan.
What we have seen across the public sector is the replacement of final salary schemes with CARE (Career Average Revalued Earnings) schemes. These calculate the pension based on the average career salary and not final salary. They remain valuable but are not as costly for employers.
A Pension Loss report for Claimants with service under their employer’s terminated Final Salary scheme and CARE scheme requires two calculations, one for each scheme (set to the start and end date of each). This is a complex exercise especially when tax-free lump sums are brought into the equation.
There are different rules for different schemes across different pension providers; there’s no set way of approaching these reports and it would make good sense to approach experienced experts like Frenkels Forensics who complete all parts of the reports and calculations in-house and have 35+ years of experience in forensic accountancy and pension reports, and calculations for personal injury damages.
Workplace Pensions Rollout
As part of the Workplace Pension reforms, employers have a duty to contribute to set up and contribute into a Money Purchase Scheme on behalf of their employees, assuming the employee does not opt out. This suggests that every employee will be able to access a Money Purchase Scheme and the additional tax benefits it brings.
This means that damages for Claimants of all pre-retirement ages should also include a Pension Loss calculation. We have long-since warned our clients who handle serious injury claims for children and infants that they need to include these reports but now the scheme has been rolled out, it is unavoidable. Defendant litigators must also keep their wits when assessing these claims, especially if the complex calculations have not been prepared by an accounting expert.
Fatal Accident Claims
As our work in this field is based on complex personal injury and clinical negligence loss of earnings and pension loss reports for Claimant and Defendant litigators, we receive a number of instructions to assist with fatal accident claim calculations and related loss of dependency claims. The Pension Loss element is stumping a number of practitioners (understandably, in many cases it’s a new component!) so we thought we’d offer some advice to save you time, money and unnecessary complication. That is:
Pension Loss calculations for fatal accident claims should not be separated off from Loss of Earnings calculations. Rather, they need to be considered in the context of the overall calculation for loss of dependency claims. Employee and employer pension contributions, tax relief, annual pensions and tax free lump sums all need to be part of the calculation and cannot easily be separated out. The end point for the loss of earnings claim is usually (but not always) the start point for the loss of pension claim.
For loss of dependency claims, we would urge you to approach us for advice on this matter from the very start as, in times of uncertain and increasing cost control for civil litigation, the last thing you need is to have to spend more resources unpicking incomplete calculations.
Thanks to the complexity of changing pension schemes and the new world of pension loss calculations for Claimants of all ages, we expect both Claimant and Defendant litigators will be seeking cost effectiveness, accuracy and experience in handling Pension Loss calculations. The nature of these calculations also lends itself to joint instructions on Pension Loss reports.
Pension Loss reports are now unavoidable and near impossible for lawyers to do alone. We have over 35 years of experience in forensic accounting in the personal injury sector; accountancy is ALL we do and we know how complex and time-consuming Pension Loss reports can be.
Our experts are on hand to talk you through our competitive rates, unrivalled experience and our approximately four-week turnaround promise for Pension Loss reports.
Please contact us on 0330 118 8200 or Make An Online Enquiry.
Vitek Frenkel FCA, Partner, Frenkels Forensics.