Trustees should keep their distance from members' employer disputes, lawyers have said, after Northumbria Police was required to pay out more than £250,000 for discrimination and pension loss, but others argue open communication is critical.
Claims of disability discrimination can be costly for schemes; last year a former employee of the Plymouth Hospital NHS Trust was awarded £105,643 in compensation following a claim of unfair dismissal and disability discrimination.
The chief constable of Northumbria Police was required to pay compensation of £258,551 for disability discrimination in June 2014, of which £126,877 related to pension loss.
At the end of 2010 a member of the scheme became ill with stress and depression. He would have been fit to return to work by February 2012, but was prevented by six acts of disability discrimination on the part of the employer.
Small assumptions and changes can have a big impact on how a pension is calculated
James Bingham, Sackers
In calculating the compensation the Employment Tribunal used a bespoke approach, declining to discount it to account for the possibility the claimant would later get work as a teacher but discounting it for “accelerated payment and for the vicissitudes of life and the risk that employment might have ended sooner”.
It also grossed up the figure to account for the tax the claimant would have to pay on the sum received.
Both parties appealed against different aspects of the calculation.
Rosalind Connor, partner at law firm Taylor Wessing, said strong complaints processes and open communications were key to minimising the risks of pension loss and compensation.
She said: “First make sure you’re catching any complaints as early as possible so you can be part of the conversation. Often the discussion is between the employer and employee. Also, get your data right.”
She added the Employment Tribunal used to have a basis for calculating loss of earnings, but abandoned it as it was no longer believed to be accurate.
Pension losses are made more complicated by the fact that they must take into account pay rises, promotions, whether the person would have stayed in the scheme and other factors.
“There’s so many variables it’s impossible to get a completely accurate picture,” Connor said.
Not getting involved
However, Anne-Marie Winton, partner at law firm ARC Pensions Law, said in situations where individuals were negotiating loss of earnings with an employer, it was often best for schemes not to get involved.
She said: “The risk here is that trustees shouldn’t be dragged into an argument that’s not theirs to have. There’s nothing in law that tells trustees to go any further than [providing] a cash equivalent transfer value.”
Winton added that in most compensation cases individuals and the employer would do a deal rather than go to court.
“When I was investigating this, it seems a figure is happened upon, but it’s a bit of horse trading,” she said. “Most will settle rather than take it to court.”
James Bingham, senior associate at law firm Sackers, said calculating pension loss could be “incredibly difficult”.
“Small assumptions and changes can have a big impact on how a pension is calculated,” he said.
The process is complicated by the fact schemes often will have their calculation rules created by a legal adviser, who is then not responsible for carrying out the calculations, creating a disconnect between the intention of the rules and how they work in practice.
“It’s about making sure there’s a pathway between the rules and the person making the calculation,” said Bingham.
