Employers who are relying on the fact that overtime is not taken into account when assessing the pension entitlement of their employees should check the implications of a recent Court of Appeal case.

The case involved a caretaker employed by Newham Borough Council. His employment contract provided for a basic salary for a basic 36-hour working week and an agreed rate for overtime. The contract did not require him to work overtime and did not require the employer to provide overtime although, in practice, like many other local government employees, he often did work overtime.

When the caretaker retired, his pension was calculated by reference to his final salary, according to the rules of the Local Government Pension Scheme. He claimed that overtime payments should be taken into account when calculating his final salary. The Council disagreed, however, on the basis that the regulations provide that "remuneration" for pension purposes does not include "payments for non-contractual overtime".

The case wound up in the Court of Appeal and turned on the question of whether or not the caretaker was contractually obliged to work overtime. The Court of Appeal decided that the Council was contractually entitled to require him to work overtime and that, in practical terms, he was obliged by his contract of employment to work the overtime in question, except where he made proper arrangements for someone else to do so. Therefore, the overtime payments were pensionable.