Ten years ago, I was encouraged – or obliged – to study certain legal cases involving pensions to pass Pensions Management Institute exams.
At the time, I considered this a complete waste of time, knowing (or at least believing – wrongly as it has turned out) that I would never become involved in pension law.
Remarkably, though, by the time I had to take the exam, I had started to appreciate the extent to which an understanding of current and future pension developments could be understood and even anticipated from a knowledge of recent, current and imminent court cases.
This appreciation has stood me in very good stead over the last decade and, on recently taking stock of some of the more interesting and important pension cases hitting or about to hit the headlines,I realised that an article or two should prove valuable to those ready and willing to broaden their business horizons.
First, a major update on a case I discussed about six months ago. Preston v Wolverhampton is a part-timer dispute which went further than simply requiring the employer to accept part-timers into membership of the company pension scheme (which, of course, is now old hat).
Mrs Preston, a part-timer, and her advisers followed the lead in a previous case brought by Mrs Magorrian in seeking to have a claim for scheme membership backdated to 1973, the first relevant European sex discrimination case in the name of Defrenne.
She claimed not only is her employer acting unlawfully in denying access to the pension scheme to part-timers but that it has also been acting unlawfully for many years. All the way back to 1976, in fact.
So, Mrs Preston and a clutch of similar claimants took their views finally to Europe which, despite some concerted defence by representatives of pension schemes, agreed with the principle of the claim and ruled that part-timers can indeed backdate their claim to their date of joining or 1973, whichever is the latter date.
That all happened last year but it was only last month that the House of Lords finally ruled in agreement with the European judgment. This is the first but perhaps not the most important major aspect of this update article and it means that there is now absolutely no way in which pension schemes can further delay legitimate claims from part-timers for nearly 30 years of backdated benefits.
The floodgates are now open for tens of thousands, if not hundreds of thousands, of part-timer backdating claims to succeed simply (almost) by citing the Preston decision.
But how many of these potential claimants know about their right to claim or are ever likely to find out about it? Following the success of Magorrian and in anticipation of the subsequent success of Preston, certain trade unions gathered together over 60,000 claimants, most of which should now prove successful.
The trade union movement knows it has only found a relatively small proportion of the people who could potentially make such a claim, yet the unions can only do so much and their persistence has, quite naturally, waned as time and victory has passed.
Besides, the majority of part-timers – the vast majority, in fact, I am informed – are not members of a trade union and so will not benefit from any prompting to, or assistance in, making a claim.
This is where I suggest interested IFAs might become involved. There is some valuable bulk fee-based work to be done here and I use the word valuable to mean valuable both to potential claimants and to the IFA firm. A worthy and profitable opportunity when this combination arises, I am sure you will agree.
Following the conclusion of the Preston case from Europe to the Lords, it is clear that part-timers, subject to two main conditions which I detail below, will not necessarily automatically be granted backdated pension scheme membership by the proactivity of their emp-loyer or the scheme.
It will depend on the employer as to whether he/she, in effect, retrospectively amends the scheme eligibility requirements to include these part-timers or whether he/she simply waits for claims to be made.
The trade unions hoped the volume of claims brought by them alone would be sufficient to persuade or prompt most schemes to do it retrospectively for all eligible part-timers but here is the second major update following the very recent Lords' decision.
I have, over the last few weeks, been interested but somewhat disappointed to read in a couple of well respected newspapers and newsletters (both published primarily for pension scheme administrators and their professional advisers) discussion about the conclusion of the Preston case, which leaves me in very little doubt that the vast majority of pension schemes have no immediate intention of proactive retrospectivity.
Indeed, it seems clear to me that most schemes will never follow such a route and currently intend only to grant retrospectivity to those who ask. To go even further, I am aware many schemes have not even thought about this issue and are only for the first time now realising that the cost of such claims will be huge.
To avoid doubt at this stage, I can confirm that the Preston ruling applies equally to defined-benefit and money-purchase pen sion schemes – the latter requiring the employer to make some sort of calculation as to either the fund which would have accrued, allowing for investment growth, had the contributions been made on time or the making of some sort of offer to the claimant for equivalent premiums invested with an allowance for accrued interest.
Which ever of these is the most appropriate or desirable was not established by either Magorrian or Preston and will no doubt cause much debate and negotiations between schemes and claimants (although, in the latter case, only if they are well represented).
This means many hundreds of thousands of part-timers will never hear of this opportunity and will, in all probability, simply be grateful for their recent inclusion in “the company pension scheme” for future service.
So, where do we IFAs come in? Well, following this very recent Preston judgment and after identifying a considerable need in the market, some readers may want to take a lead from my own firm's approach. We are charg-ing £250 per part-time claimant to act on their behalf in all negotiations with their scheme to secure backdating to their date of joining the company or 1976, which ever is the latter.
We operate on a no-win nofee basis although the £250 must be paid up front and returned to the claimant in the unlikely event that we are unsuccessful. Initially, this may mean a formal approach (by letter) to the employer but will frequently require a claim through the proper channels (that is, a tribunal) if the employer does not immediately agree to such a request.
Further negotiations are likely to be required on such issues as assumed investment growth (for money-purchase schemes), backdating of contributions (where appropriate, and note the requirement for these to be paid should not readily be accepted), assumed earnings'figures (where the employer cannot trace such records for all of the last 30 years) and proof of broad equivalence with full-time employees. We will consider these issues and others in some detail next week.
For now, I would like to address the derision which I am certain many of you are currently feeling for any IFA who would put so much work into such a small case for such small reward. Before next week, therefore, perhaps you would like to think in the wider context of acting for not one but tens, hundreds or even thousands of similar part-timers working for the same employer.
You do not need to see each claimant, of course, and so there is one lot of work primarily but paid by many people. The maths is very exciting, I am sure you will agree.