It’s always a risk to make a prediction in writing, simply for the fact it can be used against you in the event you are wrong.
That is why my prediction will take 2-5 years before the trend will emerge.
What do you predict?
An increase in professional negligence claims against lawyers for under-settling claims.
Give me some actual details…
This will be for the head of loss relating to pensions.
Pray tell me more.
With the mandatory enrolment into a workplace pension scheme, people that are forced into “early retirement” through an accident
(“accident” being caused by a third party for breach of statutory duty and/or negligence and/or [insert every other basis of claim]) will have a very good opportunity to include loss of pension income.
The auto-enrolment scheme has been brought into force with a prescribed scheme. This provides the clarity needed. Before this came about it was difficult to establish that a person was scheduled to pay into a pension scheme and then receive a benefit at the end of their working life.
A particularly youthful claimant, who was yet to pay into a pension pot, found themselves having to prove their credibility when it came to paying into a pension scheme. This was not simply a person at school who “dreamt of becoming a police officer” or other lucrative final pension scheme career. It included people in the 22-30 year old category who worked but had not formally entered into a scheme; mainly because they had a lot of time on their side. It was a matter they simply had failed to get round to sorting out.
In your 20’s there are a lot more interesting things to do at weekends than meet a financial advisor to plan your future.
What has changed?
Companies now have pension schemes which are administered through a provider. These involve physical documents detailing percentages, amounts and tangible details such as anticipated returns.
It therefore provides a claimant with the document trail to instruct their expert witness. I would imagine this to be a forensic accountant, but I am happy to be corrected. This expert can then outline the predicted return, and provide a range of figures that take into account the factors which may affect the pensions market.
I am, of course, not an expert. That said, I reasonably hazard a guess that the expert would report something like:
- Mr. X was enrolled on pension scheme Y, which is administered by Z.
- Z is a large pensions provider with [number] years of experience in the market.
- A copy of the pension scheme of Z is exhibited to my report at appendix 1.
- Mr. X paid in £[amount] per month which equated to [number]% of his salary.
- He had been employed by his company for [number] years before his injury.
- The pensions scheme required Mr. X to contribute £[amount]/[number]% for [number] years until his scheduled retirement at [age]
- At the time of his injury, Mr. X’s pension pot was calculated as £[amount].
- Based on [insert factors affecting pension pot], I consider Mr. X would have received a final pension total of £[amount]. I am willing to consider, based on [insert key factors that are more volatile or susceptible to variation], the range of figures comprising his final pension to be between £[amount] and £[amount].
- The difference between Mr. X’s contributions at the time of his injury and the final figure is £[amount].
Subject to the claim being settled in the normal way, Mr. X would receive a sum of money in settlement for his loss of pension. This would be the amount he would have received but for the incident that caused his injuries and caused him a loss of earnings and other heads of loss.
Where will the negligence come from?
Simply put, it will be caused by claimant’s solicitors failing to identify a high value claim.
If Mr. X has suffered an injury, a firm may only focus on the actual losses and fail to give due consideration to the future losses in the correct manner.
The Claimant’s solicitor may include the normal JSB injury amount, time off work, loss of amenity, adjustments, etc. The pensions aspect may be overlooked. The focus will be upon how much their salary is, rather than looking at the package of benefits provided by their employer.
Are we talking about under settlement of claims for notable amounts of money, or chicken feed?
These pension schemes arranged for by the government will rise incrementally.
There will be matching of a percentage and I imagine that a large number of firms will have a matching contribution of 3% with the employee contributing 3%. This make a 6% pension.
While this may not seem to be much, it is important to look at the big picture.
6% pension contribution on a salary of a £25,000 salary may not be a lot of money at face value, but looking beyond a cursory glance there is a lot more to it.
- 25 year old on £25,000 a year
- They planned on retiring at 65
- 3% was contributed by the employee and 3% contributed by their employer
- Assumption that the pension fund would keep pace with inflation
- This provides a monthly pension of £230.00 based on today’s prices.
This now gives you a pension loss of £2,760.00 per year.
Now think about what happens if there has been a shortened life expectancy as a result of the injury?
That’s right, the number will be multiplied. The small amount of £2,760.00 suddenly becomes a much larger figure.
Stretch your imagination further and what happens if your client is contributing more, or earns considerably more? We are now talking about a lot of money.
How can we avoid professional negligence claims for this?
Simply put, this comes down to management and supervision.
Include within your introduction letter to the client a separate category relating to pensions. Insist that you are provided with a copy of the policy. If they cannot produce a copy it still falls under your responsibility!!!
Obtain a signed mandate for disclosure of the policy and spend time tracking it down. Their employer may point you in the right direction, otherwise they may be lucky enough to have a pensions broker.
If you do not feel comfortable interpreting the policy and calculating the potential losses, make sure you instruct an expert. A desktop report is unlikely to be very expensive. It will be a valid disbursement and help to protect you from a professional negligence claim in the future.
Over and out.