Stephanie Prior, Partner
Lord Turner’s Pensions Commissions Report established the National Pension Savings Scheme (NPSS). The purpose of the scheme was to make sure that there was private pension provision for employees with little or no employer provision. The Pensions Act 2008 essentially follows the commission’s proposals that contributions will initially be based on ‘qualifying earnings in a band between the primary threshold and the upper earnings limit’.
Section 13 of the Act explains that:
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A person’s qualifying earnings in a pay reference period of 12 months are the part (if any) of the gross earnings payable to that person in that period that is:
(a) more than £5,035; and
(b) not more than £33,540.
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In the case of a pay reference period of less or more than 12 months, subsection (1) applies as if the amounts in paragraphs (a) and (b) were proportionately less or more.
- In this section, ‘earnings’, in relation to a person, means sums of any of the following descriptions that are payable to the person in connection with the person’s employment:
(a) salary, wages, commission, bonuses and overtime;
(b) statutory sick pay under Part 11 of the Social Security Contributions and Benefi ts Act 1992 (ch 4);
(c) statutory maternity pay under Part 12 of that Act;
(d) ordinary statutory paternity pay or additional statutory paternity pay under Part 12ZA of that Act;
(e) statutory adoption pay under Part 12ZB of that Act; and
(f) sums prescribed for the purposes of this section.
The Act has to allow for the above-inflation increases to the upper earnings limit for 2008/09 and 2009/10. The earnings band in 2006/07 is set as between £5,035 and £33,540, and the Secretary of State has the authority to look at and increase the band limits on an annual basis to maintain their value. In effect the bands are reviewed and increased in line with national earnings.
Significance of the new scheme
The scheme is in contrast with the current stakeholder pension scheme, and qualifying earnings as stated above will include:
- wages;
- commissions;
- bonuses;
- overtime payments; and
- some statutory benefits such as statutory sick pay.
The Pensions Act 2008 received royal assent on 26 November 2008. It contains a number of procedures that are aimed at encouraging larger private pension saving. As a result, with effect from 2012, it is planned that all eligible workers who are not already involved in a good workplace scheme will be automatically enrolled into either:
- their employer’s pension scheme; or
- a new savings plan otherwise knownas a personal account scheme.
To entice employees to take part in a qualiying workplace scheme (which may be fulfi lled by an existing arrangement, but, if it is not, they must automatically enrol all employees into a personal account), employees’ contributions will be supplemented by their employer and they will also have tax relief. Employers will be obliged to pay a minimum of 3% of their employees’ earnings into an eligible employer’s workplace pension scheme. The government will contribute an additional 1% in the form of tax relief. The employee will be required to contribute 4%. The ultimate contribution level is thus 8% of qualifying earnings.
It is expected that gross contributions from both employers and employees will be phased in over three stages:
- 2% in the first stage, with a minimum employer’s contribution of 1%;
- 5% in the second stage, with a minimum employer’s contribution of 2%; and
- 8% in the final stage, with a minimum employer’s contribution of 3%.
The proposed maximum contribution limit is £3,600 per tax year. The Department for Work and Pensions initially proposed that a higher contribution end point should apply in the first year, but this proposition was later withdrawn. Employees between the ages of 22 and state pension age will automatically be enrolled if and when their earnings cross the minimum threshold (£5,035), if they change employer, and every three years if they choose to opt out of the scheme.
This particular scheme is not like the current stakeholder pension scheme because there is no minimum number of employees before an employer has to establish it. Therefore, in a number of our cases we will have a positive obligation to our clients to add the extra cost involved in employing paid carers into our schedules of loss and damage. We must also be aware that care agencies may increase their costs to comply with their statutory obligations. It is prudent to obtain an estimate of any likely increase in annual costs in a case where care is expected to be given by an agency.
XXX v A Strategic Health Authority [2008]
In this case Jack J upheld the claimant’s father’s claim for this additional expense. The case involved a claim by the 17-year-old claimant, who was severely disabled as a result of treatment he received by the defendant health authority following his preterm birth. He had cerebral palsy, very little movement in his left hand, some movement in his right hand, and no movement in his legs, but was able to attend mainstream education and had taken his GCSE examinations.
Proceedings were issued in June 2006 and judgment entered into later that year, for damages to be assessed. Damages were agreed between the parties save for issues relating to the claimant’s care regime after his 19th birthday.
As at the date of the trial the claimant had been cared for throughout his life by his parents. They had provided him with the best care they could, but it was their wish that from the age of 17 until 19 the claimant would be introduced to a care regime whereby his day and night care would be transferred from his parents to a team of qualified paid carers. Both of his parents wished to return to work. His father was previously employed as a management accountant with a successful career in business. The claimant’s parents had not sought any assistance from the local authority with their son’s care and it was not their intention to do so in the future. No other issues arose in relation to this save that at a future time and in circumstances that could not be foreseen the claimant may obtain assistance from the local authority, which may overlap with periodical payments and raise the possibility of a double recovery. However, Jack J, having considered ‘reverse indemnity’, did not have the power to order it, and other potential proposals were discussed between the parties.
The claimant’s life expectancy was between 57 and 60. Various issues arose in relation to care, which is outside the remit of this article. However, the claimant’s father raised the issue of pension contributions on the basis that the claimant was going to be cared for by paid carers, that it was proper for an employer to contribute to pensions for his employees, and that it would ‘make a position with the claimant more attractive’. Jack J agreed and said:
The case is on firmer ground in its reliance on the Pensions Bill and the compulsory contributions which it will require from 2012 if it becomes law. There is no reason to think that it will not: I was told that it had secured the approval of the House of Lords. The probability is clearly that contributions of 3% of pay within limits as set out in the Bill will be required. The award should accordingly provide for this.
It did. As a consequence, it added an additional £4,623 per annum to the long-term care package.
Conclusion
The proposed pension scheme is designed to prevent widespread old-age poverty in the future, but it will not be fully implemented until 2016. It is hoped that it will target workers who are predominantly middle to low earners. There are penalties for non-compliance with the scheme, and these are set out in ss45-47 of the Act.
This additional cost to claimants must be calculated and included in any claim for future care costs on the basis that there will be compulsory contributions of 3% (employer), 4% (claimant) and 1% (government). Also under the microscope will be a claimant’s loss of pension, including the options and benefits a pension scheme can provide, for example death in service benefit, spouse’s benefits and fatal claims. Coupled with the implication that our working lifespan is likely to increase, with the state pension age climbing to 68 in stages from 2024 onwards, and possible further increases by 2067, pensions will remain a head of loss that requires careful thought, research and planning to achieve the best possible result for claimants.
The next general election must be held by June 2010, and this is before the start of the new pension scheme coming into force. If there is a change of government, the scheme may not get off the ground or proceed in its current proposed form. This uncertainty also makes litigation and advice regarding future claims for employed care and loss of pension uncertain and even more complex.
Stephanie Prior is a Partner at Anthony Gold. She specialises in complex personal injury and clinical negligence work, with a particular interest in birth injuries, child abuse claims and fatal accident cases.
