Compensation

When awarding compensation for employment claims including unfair dismissal, employment tribunals will usually take any pension loss the employee has suffered into account. The method of calculating pension loss varies from case to case depending on the situation and type of pension scheme. A recent decision of London Central employment tribunal highlights the importance of properly considering what method should be used to calculate pension loss in employment disputes - the difference between methods here amounted to almost £1 million in losses.

Ms Jhuti won an unfair dismissal case against Royal Mail and all losses were assessed during the original remedies hearing, except pension loss. Ms Jhuti had been a member of a defined contribution pension scheme in which contributions from the employer and employee are paid into a pension account along with any return on investment of the contributions. The employer contribution rate was 7% of Ms Jhuti’s salary.

A separate remedy hearing was held to address the question of which method should be used from the defined contribution pension loss examples set out in Employment Tribunal guidance. The methods debated were:

• the ‘Fraser’ method - employer pension contributions are added to net salary and then multiply by the relevant Ogden Tables figure to calculate the net loss of earnings up to retirement age.

• the ‘Contribution’ method - calculate the annual pensions loss based on 7% employer contributions and then multiply by the Ogden Tables figure already determined in the original remedies hearing relating to future loss of earnings.

The Fraser method was proposed by the claimant and calculated pension loss at £1.17 million. 

The Contribution method was proposed by the respondent and calculated pension loss at £63,000.

The Tribunal rejected the application of the Fraser method on the basis that it was only one method outlined in the guidance and was a very different fact pattern to this case. The most significant difference was that in the Fraser example, the claimant had got a new job with much lower employer pensions contributions, whereas Ms Jhuti was deemed permanently unable to work and had no replacement income or pension contributions.  Her future loss of salary had already been included in the original compensation calculations and applying the Fraser method would effectively double compensate her for future loss of earnings, leading to a “gross and unjustifiable overcompensation”.

The Tribunal therefore decided in favour of the Contribution method, using the annual employer pension contributions and applying the appropriate multiplier from the original remedies judgment to calculate future pensions loss.

In most cases, the basis for calculation of pensions loss involving defined contribution pension schemes will be the employer’s pension contributions for whatever period of loss the Tribunal has identified (i.e. the ‘Contributions method’). However, the Tribunal will deviate from that basis where necessary, using a ‘broad brush’ approach and taking an overall view of the appropriateness of the compensation awarded.

As is evident from this case, the calculation method used can produce vastly differing loss figures based on the same facts therefore it is worth carefully considering which method is appropriate in each case. We have a team of specialist pensions lawyers who can assist with calculating pension losses.

Jhuti v Royal Mail Group [2023] ET 2200982/2015

Important note: ET level decisions are merely of persuasive value, and are not binding upon future ETs, but can provide a useful indicator of how certain issues are currently being dealt with within the ET.