Pension loss: a substantial issue

The Court of Appeal in Griffin v Plymouth Hospital NHS Trust has offered guidance to Employment Tribunals regarding the correct basis on which to calculate an employee's pension loss on a claim for unfair dismissal. Mike Smith provides a summary of the case and its key implications. 

The background

The claimant in this case was a member of a final salary scheme (otherwise known as a defined benefit scheme). The essential feature of such a scheme is that, on reaching retirement age, a member becomes entitled to a defined level of benefits calculated by reference to length of service and final salary. As a result, an employee in a final salary scheme suffers two kinds of loss on dismissal.

• Accrued rights: the loss of enhancement due to being unable to accrue a pension based on his/her final salary if s/he had remained in employment, but with his/her benefits based on a revalued deferred pension.
• Future rights: the loss of the ability to accrue future years of service and so increase the pension payable at retirement.
  

Guidance contained within a publication called Compensation for Loss of Pension Rights - Employment Tribunals (3rd edition) offers tribunals two approaches to calculating an employee's pension loss:

• the simplified approach; and
• the substantial loss approach.
  

Whilst these guidelines are not mandatory, it will usually be appropriate to follow either of the two approaches; the guidance recommends that the simplified approach is used in most cases.

The simplified approach. Broadly, the simplified approach looks at the contributions the employer would have made to the claimant's pension scheme from the date of dismissal to the date of the hearing, and beyond this to such time as the claimant is expected to have found a job with similar benefits.

The substantial loss approach.  The substantial loss approach involves a more detailed examination of the claimant's pension loss and uses actuarial tables to assess the current capitalised value of pension rights which would have accrued up to retirement.

The facts

In Griffin v Plymouth Hospital NHS Trust, the Claimant, Ms Griffin, was employed by Plymouth Hospital NHS Trust as a specialist clinical technician. In 2007, Ms Griffin developed a serious illness, subsequently leading to her resignation in 2009 at the age of 34. Her resignation was on the basis that the Trust had failed to enable her to return to work in a way that would accommodate her condition, and her claims for constructive unfair dismissal and disability discrimination were successful at Employment Tribunal. However, Ms Griffin believed that the award in respect of financial loss was too low and she appealed twice to the Employment Appeal Tribunal (the second time without success) before appealing to the Court of Appeal. She claimed further significant compensation for loss of earnings, and argued that the substantial loss approach should have been used to calculate her pension losses.

In the original hearing, the Employment Tribunal concluded that the appropriate approach to take in calculating Mrs Griffin's pension loss was the simplified approach. In reaching its decision, the Tribunal noted that, in the Pension Loss Guidance, it was suggested that the substantial loss approach may be chosen in cases where the employee has been in the Respondent's employment 'for a considerable time'. However, the tribunal considered 'considerable time' to denote a time which brings an employee much closer to retirement. Although Mrs Griffin had been employed by the Trust for 10 years, at the age of 34 she was far from retirement.

The decision

The Court of Appeal dismissed Ms Griffin's claim for further compensation for loss of earnings. However, it upheld her claim that the substantial loss approach should have been used to calculate her pension loss.

It held that, in choosing to apply the simplified approach, the Tribunal had failed to engage in the more general question of whether Ms Griffin was likely to remain in the Trust's employment until retirement date. The Judge advised that, whilst in some cases the fact that a claimant was aged only 34 might be reason to consider the chances of remaining in the scheme until retirement too remote to use the substantial loss approach, it is still necessary to consider the question.

As Ms Griffin had a specialist skill for which the principal market was in the NHS, it was likely that she would remain in the NHS for her whole career. Her medical condition, which made her cautious about embarking on major change, further supported that she was unlikely to seek a new job. These factors were not considered applied by the Tribunal and, as such, it misdirected itself in choosing to use the simplified approach.

Furthermore, the Tribunal itself had suggested it was unlikely Mrs Griffin would leave her job when it applied a withdrawal factor of 20%, where a low percentage reflects little uncertainty that Mrs Griffin would have remained in the scheme until retirement. The Court of Appeal found this percentage to be inconsistent with the Tribunal's finding that its uncertainties about Mrs Griffin staying until retirement were so great that it would be inappropriate to use the substantial loss approach.

The Court of Appeal remitted the case back to the Tribunal to reassess pension loss by adopting the substantial loss approach.

What does this mean for me?

Although the facts of this case are quite specific, the case is noteworthy because it may suggest that the use of the substantial loss approach could become more widely used, because of the current scarcity of alternative final salary pension schemes available to claimants who can show that they were likely to have remained in their employment (and been able to access a final salary scheme) until retirement had it not been for their unfair dismissal. It also clarifies that an employee's age is not a definitive indicator that the simplified approach method is appropriate to use – all of the facts are important. Finally, if the case involves discrimination or whistle-blowing, the award for pension loss could be very significant, particularly where the employee was a high earner, because the statutory cap on compensation does not apply to these claims.