Employers across the UK have been issued with new guidance concerning 'Preston factors', which provides crucial details on how earnings and interest should be calculated. This updated information is particularly relevant for organisations navigating complex equal pay claims, especially those involving discrepancies within pension schemes. The guidance, which is set to come into effect from April 2026, aims to provide clarity and standardisation for employers facing such legal challenges.
The concept of 'Preston factors' originates from the landmark case of Preston and others v Wolverhampton Healthcare NHS Trust and others. This case established that employees could bring equal pay claims in relation to pension benefits, even if those claims extended beyond the typical six-month limitation period for other equal pay disputes. The new guidance therefore serves to assist employers in accurately assessing and resolving these long-standing and often intricate claims, ensuring fair compensation where historical discrimination is identified.
Understanding the precise methodology for calculating earnings and interest is vital for employers to accurately quantify any liabilities arising from successful equal pay claims. The guidance is expected to detail specific actuarial methods and economic assumptions that should be applied, helping to standardise calculations across different organisations and sectors. This move is anticipated to reduce disputes over the calculation methodology itself, allowing focus to remain on the merits of the equal pay claims.
For many public sector bodies and large private companies with legacy pension schemes, the implications of this guidance are significant. These organisations have often been at the forefront of equal pay challenges, and the new factors will directly influence the financial provisions they need to make. The lead time until April 2026 offers employers an opportunity to review their existing equal pay policies, audit their pension schemes, and prepare for the consistent application of these updated calculation methods.
The Department for Work and Pensions (DWP) or HM Revenue & Customs (HMRC), typically responsible for such guidance, has not yet issued a detailed public statement on the specific content of the factors. However, the release of this employer-focused guidance underscores the ongoing commitment to addressing historical pay inequalities and ensuring that all employees receive fair and equal treatment in their remuneration and pension benefits.