If you have been unfortunate enough to be dismissed from your job, the last thing you want to be worrying about is your pension, but it might be more important than you think. In this article, Centric HR explains whether being dismissed affects your pension, and if you can completely lose your pension as a result of being dismissed.
So, does being dismissed affect your pension? If you are dismissed lawfully, then being dismissed can affect your pension. The lawful dismissal of an employee causes a loss in pension contributions or a reduction in value of pension benefits. If you are unlawfully dismissed your pension should not be affected. Being dismissed should not affect your state pension.
Keep reading to find out more about pension loss and what happens to your pension if you get dismissed.
Does being dismissed affect your pension?
Being dismissed from your job can affect your pension, especially if you have an occupational pension whereby the employee is automatically enrolled when they start the job. Examples of occupational pension schemes include a defined benefit scheme or a defined contribution scheme. However, if you have a state pension, it is highly unlikely that your pension value will be affected by you being dismissed. Below we go into more details with regard to each pension scheme.
You are highly unlikely to experience an effect on your state pension as a result of being dismissed because, in order to qualify for a state pension, you need to have made national insurance contributions for a minimum of 10 years.
Therefore, being dismissed, and then unemployed for a short period of time, should not affect your state pension too significantly because you have the remainder of your working life to reach at least 10 years of national insurance contributions.
Defined benefit scheme
Defined benefit schemes are more rare in the modern day, and tend to be for workers in the public sector, such as the Armed Forces, Government employees, the NHS, the Police and Teachers. This pension scheme is calculated based on length of service and level of earnings.There may be a reduction in both factors if you have been dismissed and, as such, you could experience a reduction in your final pension value.
Defined contribution scheme
Defined contribution schemes are normally personal or stakeholder pensions and work by taking contributions from both you and your employer, and investing them in shares. The value of your defined contribution scheme pension can increase or decrease depending on the performance of your investment. Therefore, if you got dismissed, your pension would likely be affected significantly due to the reduction of investment from either side.
Do you lose your pension if you get dismissed?
If you get sacked from your job, whether that be unlawfully or under fair dismissal, you will not lose your pension, but rather see a reduction or pause in your pension.
As previously mentioned, if you are working towards the State Pension, you only have to complete a minimum of 10 years contribution to National Insurance to receive the State Pension. This means that if you get sacked, your National Insurance payments may come to a paus and, if you cannot find more work, may result in you not meeting the minimum threshold to receive your state pension.
Furthermore, if you have a defined benefit scheme Pension or defined contribution scheme pension and you get sacked, you will not necessarily lose your pension, but instead possibly experience a reduction in your pension value. This is known as pension loss and is something you can receive legal support with through an employment tribunal.
What happens to your pension if you get dismissed?
If you get dismissed unlawfully and, as a result, see a reduction in your pension, irrelevant of your pension type, you can contest this via an employment tribunal.
An employment tribunal aims to rectify any pension loss that is incurred as a result of unlawful dismissal in the hope of restoring the pension value to what it would have been if the dismissal had not occurred.
This links to the Gourley Principle, in which a person must not be placed in a better or worse position than if a contract (in this case a Pension) had actually been carried out.
The contributions method
Typically, a tribunal case whether for a defined benefit scheme or for a defined contribution scheme will follow the ‘contributions method’ which follows the steps detailed below:
- Identify the value of the claimant’s pension if the loss had not occurred.
- Identify the value of the claimant’s pension now the loss has occurred.
- Subtract the figure of step 2 from step 1. This will give you the net annual loss of pension benefits.
- Identify the period of which the net annual loss will affect the claimant using the Odgen Table to identify the multiplier.
- Multiply the period by the multiplier which will produce the current value of pension loss.
- Calculate the full compensation award taking into account any other sums granted by the tribunal.
Once these steps are followed, the claimant should receive compensation for the loss they have incurred and therefore be placed back in the position as though the dismissal had not occurred.
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