Pension Loss – Withdrawal Factors
3 December 2021

Pension Loss – Withdrawal Factors

Parklane Plowden Chambers barrister, Gareth Price, was called in 2009 and specialises in employment and clinical negligence. He authored the below article in regards to withdrawal factors in relation to pension loss.


Pension loss claims of any complexity often fill employment lawyers with dread.

Other than short periods of lost employer pension contributions into a direct contribution pension, such claims can be time-intensive, difficult to analyse and costly to calculate.

Delays in acquiring information from pension administrators, annual revaluation under CARE schemes, Ogden table calculations and the possible need for expert evidence are just some of the hurdles in presenting or defending such claims.

The Tribunals Principles for Compensating Pension Loss (‘the Principles’), now in its 4th edition (most recently revised as of 2021), provides a ‘how-to’ guide for undertaking calculations.

For more straightforward cases, the Basic guide to Compensation for Pension Loss, exists.

With a cold towel and a cup of tea, the thicket of calculating a loss is more manageable than it may first appear.

But one aspect of such claims that attracts relatively little attention, and yet is the area where employment lawyers might be expected to add most value to a case, is what ‘withdrawal factors’ a Tribunal might apply to such a claim.

What is a withdrawal factor?

A ‘withdrawal factor’ is a factor that provides for other contingencies that arise in the case, and which may affect how long employment would have continued but for the dismissal (i.e. whether the claimant would have ‘withdrawn’ from the pension scheme, for different reasons, at a future date).

It is conceptually the same as the Polkey principle.

The purpose of this article is to explore this concept, consider its use in pension loss claims and look at some examples of its application.

Pension Loss claims concepts

To put matters in context, the following is important.

First, most employees will be members of occupational pension schemes.

Those pension schemes are typically described as either direct contribution schemes or defined benefit schemes.

Direct contributions schemes are ubiquitous in the private sector. Each pay period, the employee and employer contribute a portion of pay into the pension scheme. That money is invested and the pot at the end of the employee’s involvement in the scheme is the pension.

Defined benefit schemes come in different guises, but the most common are final salary or career average revalued earnings (CARE) schemes. They are more common in the public sector.

VERY simplistically, final salary schemes calculate the pension by multiplying the employee’s salary in their final year of employment by a fraction that reflects their years of employment.

Also very simplistically, CARE schemes add a fraction of an employee’s annual earnings (a ‘slice’) up over the course of their employment, with each slice being revalued for inflation.

In each case, that pension is then an annual income for life.

Second, when calculating pension loss claim, the Tribunal is guided by the Principles as to different methods of calculating pension loss claims.

For employees dismissed from positions benefiting from a direct contribution pension scheme, the ‘contributions method’ should be used.

For employees who had a defined benefit (‘DB’) pension scheme, their cases might be ‘Simple DB cases’ or ‘Complex DB cases’.

For simple DB cases, the contributions method may be appropriate. For instance, if a Tribunal, applying Polkey, considers that the likelihood that the Claimant would have remained in employment until retirement (and therefore a member of the pension scheme at that point) is low, the Principles suggest that even where the employee was a member of a defined benefit scheme, the contributions method is a ‘better choice.’

For Complex DB cases, the Principles suggest either using the ‘seven steps model’ (involving Ogden table calculations) or using expert evidence.

Under the seven steps model, the first step is to calculate the ‘multiplicand’. The multiplicand is the annual income amount that the Claimant would have received had they reached retirement whilst still an employee under the ‘old job’ and still a member of the DB scheme.

Third, ‘complex’ cases include career loss cases.

A career loss case is one where the employee contends that, whatever their future career path, the loss of pension benefits from their old job occupational pension will never be replaced. Consequently, on retirement, the employee will (save for any mitigation by way of other pension schemes to which they become members) have a pension loss for life.

Whether an employee in fact will not be able to mitigate this loss is of course subject to Tribunal assessment of fact.

However, it is these career loss cases which most commonly generate the need to engage in assessing whether any withdrawal factors should apply to the pension loss claim.

Where and how do withdrawal factors come in?

After calculating the multiplicand, the Principles guide Tribunals to then:

‘…take account of any withdrawal factors that may apply. The analysis is like the one done when applying the ‘Polkey’ principle; the tribunal consider the ‘old job facts’ and engages in a degree of speculation about what the future may have held.’

Factors relevant to a Polkey reduction may also be relevant withdrawal factors.

Of course, Tribunals must avoid double-discounting (and, within the Principles, step seven explicitly considers this risk and how to avoid it), but the reality is that if a Tribunal considers that on a proper application of the Polkey principle any loss might be relatively short, further consideration of withdrawal factors is unlikely to be necessary.

Should the Tribunal reach the stage of considering withdrawal factors however, the Tribunal must then engage in the sliding-doors world of what might have happened had the employee not been dismissed.

This is not a binary, balance of probabilities assessment.

It is a future loss under Mallet v. McMonagle principles and is therefore the loss of a chance - what is the chance (or likelihood) that X may have happened?

Once that assessment of chance has been made, the Tribunal must then endeavour to reduce the likelihood to a fixed percentage and apply that to the multiplicand.

How does one assess the likelihood of a withdrawal factor?

This question is, really, the most difficult to advise clients on.

For instance, in any given case, what is the percentage reduction appropriate to reflect the likelihood that, for instance, the employer will become insolvent and be liquidated?

That, of course, is entirely fact dependent and, ultimately, down to the Tribunal hearing the case.

As employment lawyers, whilst we are tasked with analysing facts and applying the law to them in order to provide advice, the reality is that accurately predicting whether a Tribunal will consider there to be a 5% or 50% chance that an employer will become insolvent is – in all but the rarest of cases – very, very difficult.

Perhaps the only constant guiding principle (commonly reflected in Polkey assessments) is that the further away in time from assessment (i.e. the remedy hearing) the prediction is made, the less confident the Tribunal should be about any status quo remaining true or any change occurring.

The Court of Appeal in Griffin v. Plymouth Hospitals NHS Trust1, however, did make it clear that the higher the likelihood of the withdrawal factor occurring, the more likely it is that engaging in the process at all is wrong:

The question is whether the uncertainties that would have to be reflected in such a discount are so great that they undermine the point of assessing the hypothetical whole-career loss in the first place’.

Further, remarking that ‘…experience shows that in most cases the relevant uncertainties are indeed too great’, demonstrates that it will be only rarely that a career long loss is best analysed in this way.

In such circumstances, the Tribunal might consider the contributions method more appropriate.  

What are typical examples of withdrawal factors?

The following are all factors that may be more or less relevant depending on the facts of the case.

The common theme for all these factors is that they affect the likelihood of the employee being a member of the occupational DB scheme on retirement or affect their benefits under any such scheme.

Remember, the question is ‘what is the chance that [the following] would have happened?’:

  • The employer would have restructured, become insolvent or otherwise dismissed the employee for redundancy
    • This might be in the context of, or reflect, wider economic factors, technological progress in the sector, the history of the business or the financial health of the business
  • The employee would have left the role, resigned or taken early retirement
    • This might be in the context, or reflect, prior length of employment, general employment history of the claimant, retention rates within the relevant industry, the particular role occupied and common career progression from that role, prospects of working in a different sector (including moving from public to private sector for enhanced salary), the relevant facts giving rise to the Tribunal litigation2 in the first place and the employee’s health or that of their immediate family
  • The employee would have been dismissed fairly
    • This, of course, may be the approach taken by the Tribunal under a Polkey assessment. If not, then (for instance) relevant evidence about the employee’s health and likelihood of losing their employment for ill-health capability reasons might constitute a withdrawal factor

It should also be added that, of course, evidence for the above will be needed.

The nature of that evidence need not come solely from parties and witnesses. Subject to matters of proportionality, expert evidence on these factors may be appropriate. For instance, geographical factors, industry-specific matters not within the usual competency of a Tribunal or medical evidence about the long-term effects of a medical condition may all be appropriate.

Lastly, a more nuanced withdrawal factor might also be that the employee would have reduced their working hours or salary whilst nonetheless remaining within the pension scheme.

Similarly, many people take sabbaticals, take career breaks or take secondments – but then later return to the employer and pension scheme.

The likelihood of each of these factors might be informed by the employee’s home / family life, caring responsibilities, qualifications or desired career progression.

Such adjustments will likely have an impact on the employee’s pension benefits come retirement.

Moreover, such adjustments ‘bite’ at different stages of the employee’s career.

The nature and impact on pension benefits of these adjustment would be set out in the pension scheme terms and evidence from the pension scheme administrator may be necessary – rather than simply ascribing a percentage reduction to the multiplicand.  

1- Albeit in the context of the pension guidance applicable at the time, from 2003, which recommended adopting either a ‘simplified’ or ‘substantial loss’ approach. This dichotomy was not retained in the 2017, 4th edition.

2- For which see Plaistow v. SoS for Justice, in which the claimant’s resilience to previous work incidents supported a finding that he would have remained in employment until retirement

Gareth Price
Gareth Price was called in 2009 and specialises in employment and clinical negligence.