The Challenge of Pension Loss Calculations

When handling personal injury (PI) and dependency claims, solicitors often face the complexities of calculating the pension loss. This part of a claim can be daunting due to the intricacies of different pension schemes, their unique rules, and how they interact with tax regulations.

For PI lawyers who:

  • Lack confidence in addressing pension loss on your own,
  • Do not regularly handle detailed pension claims,
  • Prefer to steer clear of intensive number work or deep dives into pension scheme rules,
  • Aim to secure the appropriate loss quantum for clients,

the specialised nature of pension loss calculations can be overwhelming.

Public Sector Pensions: A Closer Look

Government funded occupation pension schemes are very valuable benefits, they can sometimes look simple but often come with some complex issues.

We are talking here about claimants that work in the NHS, teaching (schools and Higher Education), Local & Central Government, Police, Fire Service, Armed forces, Security Services etc.

There is important interaction between pay scales, pension contributions, accumulating pension benefits and the eventual pension and lump sum. Each of these schemes has it’s own regulations (and peculiarities). Also, there can also be significant tax implications with pension benefits. Overall, this necessitates a thorough approach to ensure accurate calculations.

Private Sector Pensions: Understanding the Basics

In the private sector, occupational pension schemes vary greatly, whilst many people in the Private Sector might rely on the ‘humble’ Workplace Pension – there are still some nice Private Sector occupational pension schemes, offering significant benefits that require careful analysis to determine their impact on a pension loss claim.

Key Considerations in Pension Loss Quantum

There are several ‘elephant traps’ in pension loss quantum calculations:

Pay awards and scales

Are you using the latest pay scales, or best estimate as at Trial? Do your Earnings Loss calculations ‘mesh’ with your Pension Loss calculations? Do you have the right pension contribution deductions? Are you claiming Earnings Losses before or after contribution deductions?

Inflation and it’s impact on value

Given that recently inflation has been over 10%, don’t ignore the benefit of inflationary uplift.

Membership in legacy pension schemes

Many ‘public sector’ worker claimants I deal with have benefits in older Final Salary pension schemes as well as the in the newer (CARE) schemes. This means that for these claimants there is more than one set of pension rules (and numbers) at play when they retire.

The McCloud judgement and its implications

This gives rise to implications for claimants with Public Sector scheme membership between 2015 and 2022 – and this is not all yet fully ‘cemented’ in legislation.

Ill-health pensions and related adjustments

Parry-v-Cleaver, the Longden adjustment, tax treatment of the Actual pension.

The interplay between alternative incomes, ill-health pensions, and taxation

The interactions between ill-health pensions, alternative income and taxation can create some interesting issues for loss quantum. Well worth taking advice if you have a case with these components.

Special Cases: Business Income and Personal Injury Claims

Special considerations apply if you have an injury claim involving the self-employed, a family/small limited company, partnership or higher levels of PAYE income – then there may be Personal Pension planning and tax relief issues that need to be addressed in the Personal Injury claim.

The Value of Expertise

Having expert input can be invaluable. We, as forensic accountants specialising in the PI sector, understand the nuances of pension loss calculations. Our expertise has supported solicitors nationwide, from small practices to large firms who instruct us to deal with Pension Loss Quantum.

This is mostly done on a White Label basis but as a Part 35 basis for high value complex PI and Dependency claims.  Those solicitors find that this allows them to concentrate on progressing their client’s claim, in the confidence that the complex topic of Pension Loss quantum is ‘covered’.

The Weight of Pension in Loss Quantum

Do not underestimate the impact on personal injury Loss Quantum of the pension, and certainly not when it comes to calculating Dependency Losses.  

For individuals working in the public sector in particular, after their home, their occupational pension is probably their biggest asset. So, it’s important to get the pension loss quantum right!

How Formby Forensics Can Help You

At Formby Forensics, we recognise the challenges PI lawyers face with pension loss quantum. This is why we offer our specialised White Label service to assist with these intricate calculations.

If you’re looking to ensure accurate pension loss quantification for your clients, we’re here to help. Our passion and expertise lie in guiding our clients through the most challenging aspects of PI claims.

Contact Us

At Formby Forensics, we’re passionate about helping our clients and we’d love to chat with you about the best approach to take. Don’t hesitate to reach out – we’re always happy to help – get in touch now with Richard or Harriet.