UK Social Security and Child Support Commissioners' Decisions

[2003] UKSSCSC CP_1318_2001 (30 July 2003)

 


DECISION OF THE SOCIAL SECURITY COMMISSIONER

Reference No.: CP 1318 2001

1. The Secretary of State's appeal is allowed. The decision of the Manchester appeal tribunal dated 15 March 2000 is erroneous in point of law, for the reasons given below, and I set it aside. It is expedient for me to substitute a decision on the claimant's appeal against decision dated 15 July 1999 having made the necessary findings of fact (Social Security Act 1998, section 14(8)(a)(ii)). My decision is that the claimant's appeal against that decision is disallowed, so that the correct revised decision on review with effect from 12 April 1999 is that the claimant is entitled to a category A retirement pension at the weekly rate (as at that date) of £70.13, plus graduated retirement benefit at the weekly rate (as at that date) of £4.25.
2. I apologise to all the parties, and in particular to the claimant, for the long delay in issuing this decision. I was sad to hear of the reason why the claimant needed additional time to reply to the Secretary of State's submission of 13 December 2002. His reply was then received on 12 March 2003, at a time when I had a backlog of other work. Since I have in the end concluded against the claimant on the law, I wished to ensure that I had thoroughly explored all potentially relevant arguments.

The background

3. The claimant reached the age of 65 on 30 July 1998. He had claimed a category A retirement pension, for which he satisfied the contribution conditions. He was awarded a category A retirement pension with effect from 3 August 1998, plus an amount of graduated retirement benefit (GRB). There is no dispute about the amount of the GRB, so I shall say no more about it, apart from mentioning it when relevant to the claimant's overall weekly entitlement. In the calculation of the category A retirement pension, there is also no dispute about the amount of the basic pension payable. However, the claimant was told that what was called the contracted-out deduction for tax years 1978/79 to 1988/89 had to be deducted from his entitlement to additional pension, so that only £1.57 was payable in addition to the basic pension. In April 1999 a change in the rate of the contracted-out deduction was notified by the Inland Revenue. This was treated as a change of circumstances requiring a review of the claimant's entitlement to category A retirement pension. The revised decision on review with effect from 12 April 1999 was that the claimant was entitled to such a pension of £70.13 (basic pension, £66.75; additional pension payable, £3.38).
4. It is that decision, made on 15 July 1999, against which the claimant appealed. However, it appears to be agreed that if the application of the correct legal principles shows that the claimant was paid too little prior to 12 April 1999, that will be corrected by the Secretary of State. The claimant's challenge was to the way in which the amount of £3.38 was calculated. There was also mention of an invalidity addition of £4.45 (from 12 April 1999) in the Secretary of State's written submissions to the appeal tribunal. It is though clear that this was not regarded as payable to the claimant and did not form part of the total weekly benefit awarded to him. The treatment of the invalidity allowance was not challenged before the appeal tribunal. Therefore I say no more about it at the moment, but I shall come back to it when considering my substituted decision on the appeal.
5. The basis of the claimant's challenge was this. He had been in contracted-out employment with one employer in tax years 1978/79 to 1983/84 and then with another employer from tax years 1984/85 to 1988/89. The second employment ceased to be contracted-out after 30 September 1988 and he was then contracted-in from 1 October 1988 to 30 September 1990. The terms contracted-out and contracted-in refer to the state earnings-related pension scheme (SERPS) originally introduced with effect from 6 April 1978 under the Social Security Pensions Act 1975. Employment was contracted out from SERPS when an employee was a member of an occupational pension scheme which met a number of conditions, in particular down to 5 April 1997 that the scheme would provide a guaranteed minimum pension. One consequence was that employer and employee then paid a lower rate of national insurance contribution. A further consequence, to which I shall have to return in detail, was that the amount of retirement pension including the SERPS additional component (later the additional pension) would be adjusted to take account of the amount of GMP entitlement. The Secretary of State's calculation set off the claimant's GMP entitlement against the additional pension earned by contributions both contracted-out and contracted-in over the whole period from 4 April 1978 to 30 September 1998. The claimant argued that that was wrong and that there should be an offset only against the additional pension earned by contributions in the years of contracted-out employment. He argued that the additional pension earned by contributions in his period of contracted-out employment should be paid in full, without any adjustment for a GMP. The claimant calculated that he should have been paid about £9.46 per week extra.

The appeal tribunal's decision

6. The Secretary of State's written submission to the appeal tribunal was that the calculation had been correct and referred in particular to section 46 of the Pension Schemes Act 1993. The first hearing took place on 20 January 2000, when no presenting officer representing the Secretary of State was present. There was an adjournment for the claimant to seek advice and/or representation. The next hearing took place on 15 March 2000. No presenting officer was present, and the local Benefits Agency office said on the telephone that the hearing could proceed without a presenting officer. The claimant was not represented, had done his own research and wanted to proceed. Quite rightly the appeal tribunal went ahead.
7. The appeal tribunal allowed the claimant's appeal. The decision notice, which was also the statement of reasons, noted first that the claimant was not challenging any records of contributions or other matter within the province of the Inland Revenue. The challenge was to the calculation of the weekly amount of additional pension payable. It continued:

"The AO must note the fact that [the claimant] contracted back into SERPS on 30.9.88 and the AO must recalculate accordingly. Further, the figures for the tax years 1978-1988, showing the Earnings Factor less QEF, only should be recalculated (by dividing by 1/80 then by 1/52) giving the weekly amount of SERPS (hypothetical) a person would have received had he been a member of that scheme. There must then be a comparison with the amount of occupational pension earned to ensure that the occupational pension is paying at least as much as SERPS.

Para 10 of the submission refers to the Pension Schemes Act 1993, but this was a consolidating Act and pensions legislation, ie the Social Security Act 1986, clearly intends that a person should not be worse off by being a member of an occupational pension scheme.

I have revised the Secretary of State's decision because the law has been incorrectly applied in this case and [the claimant's] entitlement must be re-adjusted to take account of my decision. ...

[The claimant] has a liberty to apply to the Tribunal in the event that the law applied and input in to this readjustment (but only on the question of recalculation of the figures provided by the Inland Revenue) he feels does not accord with my decision. Such application to be within 4 weeks of notice of AO's revision."

That was in substance an acceptance of the claimant's submissions.

8. An application on behalf of the Secretary of State to set aside the appeal tribunal's decision was refused. Then a letter dated 31 August 2000 from the Pensions and Overseas Directorate, purporting to notify the claimant of the implementation the appeal tribunal's directions, produced exactly the same calculation for his entitlement from 3 August 1998 as was awarded in the original decision. The claimant exercised his right to have the case restored to the appeal tribunal. There was a further hearing on 13 October 2000 at which the appeal tribunal directed the decision-maker to follow its directions properly and to recalculate the claimant's benefit accordingly. At the same time a correction to the decision of 15 March 2000 was agreed, to substitute division by 80 and then 52 for division by 1/80 and 1/52. This time it seems that the authorities understood the case made by the claimant and accepted by the appeal tribunal. The letter dated 16 October 2000 from the Pensions and Overseas Benefits Directorate calculated the additional pension earned by contributions from 1 October 1988 to 30 September 1990 at £8.67 per week as at 3 August 1998. The extra over the amount of additional pension already paid as part of his category A retirement pension was paid to the claimant (see page 119) and his continuing payments were adjusted.

The appeal to the Commissioner

9. The chairman of the appeal tribunal granted the Secretary of State leave to appeal on 14 February 2001. The ground was fairly straightforwardly that the appeal tribunal had misinterpreted section 46(1) of the Pension Schemes Act 1993. At one point the claimant and his then representative asked for the appeal to be stayed while he made a claim against pension scheme trustees, which might in turn involve a complaint to the Pensions Ombudsman. The Secretary of State agreed to a stay pending the decision of the Commissioner in CP/4479/2000. That was granted. After Mr Commissioner Williams issued the substantive decision in CP/4479/2000 and further written submissions were made, the present case was transferred to him. It is I think agreed that nothing which he held there about which authorities have to make which decisions has an impact on the present case. The questions arising are properly within the jurisdiction of the Secretary of State. Mr Commissioner Williams granted the claimant's request for an oral hearing and directed that the case should be heard together with CP/1412/2002, a case raising similar issues in which the present claimant was acting as a representative.
10. The hearing took place on 3 October 2002 at Bury County Court. The claimant was present. The Secretary of State was represented by Mr Huw James, solicitor, instructed by the Office of the Solicitor to the Department for Work and Pensions. I am grateful to both of them for well-focused submissions. At the hearing I raised questions about the interpretation of the legislation on the interrelationship between increases to category A retirement pensions for transitional invalidity allowances on the one hand and additional pensions and GMPs on the other. Mr James was not able to obtain instructions immediately and asked that the questions be dealt with by written submissions. The claimant did not object to that and I issued a direction defining the questions. As noted above, the Secretary of State's submission was not made until 13 December 2002 and the claimant's reply until 12 March 2003.

The relevant legislation

11. The main provisions on retirement pensions are currently in the Social Security Contributions and Benefits Act 1992. Section 44(1) provides that a person shall be entitled to a category A retirement pension if he is over pensionable age and satisfies the contribution conditions, as the claimant here does. Section 44(3) provides:

"(3) A Category A retirement pension shall consist of--

(a) a basic pension payable at a weekly rate; and

(b) an additional pension payable where there are one or more surpluses in the pensioner's earnings factors for the relevant years."

There are complicated provisions about identifying earnings factors, but the factors are essentially the amount of earnings above the qualifying earnings limit on which social security contributions are payable, adjusted for subsequent inflation. Section 45(1) provides:

"(1) The weekly rate of additional pension in a Category A retirement pension in any case where the pensioner attained pensionable age in a tax year before 6th April 1999 shall be the weekly equivalent of 1¼ per cent of the adjusted amount of the surpluses mentioned in section 44(3)(b) above."

12. As Mr Commissioner Williams pointed out in CP/4479/2000, the Contributions and Benefits Act is silent on the effect on that entitlement of a person also being entitled to a GMP from an occupational scheme. One has to look in the Pension Schemes Act 1993, section 46(1) of which provided at the date of the decision in this case:

"(1) Where for any period a person is entitled both--

(a) to a Category A or Category B retirement pension, a widowed mother's allowance, a widowed parent's allowance or a widow's pension under the Social Security Contributions and Benefits Act 1992; and

(b) to one or more guaranteed minimum pensions,

the weekly rate of the benefit mentioned in paragraph (a) shall for that period be reduced by an amount equal--

(i) to that part of its additional pension which is attributable to earnings factors for any tax years ending before the principal appointed day, or

(ii) to the weekly rate of the pension mentioned in paragraph (b) (or, if there is more than one such pension, their aggregate weekly rates),

whichever is the less."

The "principal appointed day" is 6 April 1997 (Pensions Act 1995 (Commencement No 3) Order 1996). GMPs also ceased to accrue after 5 April 1997.

13. It may also be helpful to sketch in briefly the history of the equivalent legislation from its beginnings in the Social Security Pensions Act 1975. Section 6(1) provided that the weekly rate of a Category A retirement pension (for which the conditions of entitlement were set out in the Social Security Act 1975) was to consist of a basic component and an additional component payable where there were surpluses in the pensioner's earnings factors in the relevant years. Section 29(1) provided:

"(1) Where for any period a person is entitled both--

(a) to a Category A or Category B retirement pension, a widowed mother's allowance or a widow's pension; and

(b) to one or more guaranteed minimum pensions,

the weekly amount of the benefit mentioned in paragraph (a) above shall for that period be reduced by an amount equal to its additional component or, if less, an amount equal to the weekly rate or aggregate weekly rates of the pension or pensions mentioned in paragraph (b) above."

Thus at the outset of the SERPS scheme the provisions for the calculation of the additional component of a category A retirement pension and the offset of GMP entitlement were together in the same Act. And the substance of the rules was identical to that of the current rules. In 1988, under section 18 of the Social Security Act 1986, the basic component became a basic pension and the additional component became an additional pension. The claimant sees that as a change of substance. I do not. It is merely a change of name, even though there were some important prospective changes made to the calculation of GMPs and of additional pension.

14. The separation of the provisions on the calculation of additional pension and on the offset of GMP entitlement seems to have come about in the process of consolidation of the social security legislation and the pensions legislation in 1992 and 1993. The claimant had obtained and put forward copies of the reports and some of the hearings of the Joint Committee on Consolidation Bills of the House of Commons and the House of Lords. It is made clear there that the intention was to keep issues of social security in the trio of 1992 Acts and to deal with pensions issues, excluding taxation, in the Pension Schemes Act 1993, although earlier legislation, such as the Social Security Pensions Act 1975, had dealt with both of those issues. A question could well be asked why what is now section 46 of the Pension Schemes Act was not put into the Contributions and Benefits Act, since its effect is entirely on the amounts of social security benefits payable. But that did not happen. The separation makes the working out of the overall effect of the legislation more troublesome, but does not diminish the effect in law of section 46 of the Pension Schemes Act. It has its effect, even though a person reading only the Contributions and Benefits Act, and in particular section 44 on entitlement to and the calculation of the amount of a category A retirement pension, would see only the very slightest clue that entitlement to a GMP might alter the result (see section 47(3)).

Did the appeal tribunal go wrong in law?

15. My conclusion is that it did go wrong in law. Despite the wealth of interesting information that the claimant has put forward and the force with which he made his submissions, my judgment is that the Secretary of State's submissions on the law are essentially right.
16. That rests on the plain words of section 46(1) of the Pension Schemes Act. They require one to look first at the category A retirement pension to which a person has become entitled by contributions made throughout the person's working life. Then one must look at the part of the additional pension attributable to earnings factors for all the tax years in the period when GMP entitlements could be built up and at the total actual GMP entitlement for those years. The offset effectively required is of an amount equal to the total GMP entitlement (subject to the limit of the amount of the additional pension attributable to those tax years). The operation is to be carried out looking at overall entitlements as they exist after the ending of the person's working life and the taking of a state retirement pension. The operation in the claimant's case, there being no challenge to the Inland Revenue figures, requires as at 12 April 1999 the deduction from his entitlement to category A retirement pension (basic pension, £66.75, + additional pension, £60.29, = £127.04) of £56.91, the amount of his GMP entitlement. That leaves £70.13 payable. The appeal tribunal was wrong in law to impose any different result.
17. There is no scope within the legislation for there to be a separation of periods in which a person was not contracted out of SERPS and for additional pension earned in those periods to be taken out of the operation of section 46 and paid without any deduction. If, because of differences in the ways in which the real values of GMP entitlements and of earnings factors are protected, that involves some eating into additional pension earned in contracted-in years, that simply has to be accepted as part of the structure of the scheme.
18. The claimant submitted that the Government had promised to employees who were not contracted out of SERPS that they would be paid an annual pension of 1/80 of their relevant earnings (inflation-proofed) and that only his solution enabled that promise to be fulfilled. I do not agree that any such promise was made. I leave aside the fact that SERPS involved no segregated fund in which contributors had any property rights, and that benefits were funded on a pay-as-you-go basis, so that like any other prospective social security rights they were subject to later legislative change. No promise could be inferred from the 1975 legislation beyond one to pay benefits in accordance with the legislative scheme. I have tried to show above that from the outset an adjustment of entitlement including SERPS to take account of GMP entitlement was part of the legislative scheme. No promise beyond that could be inferred. Nor can the general intention that a person should not be worse of from having joined a contracted-out occupational pension be stretched to justify an interpretation of the legislation in line with the claimant's solution. There was an intention that, to be contracted-out, schemes would have to provide benefits of the same kind and of at least the same accrual rate as SERPS. But that was within the context of the overall structure of the scheme, which has always contained the mechanism for an overall adjustment looking at entitlements earned over the whole of a person's working life while the scheme was in operation.
19. If something beyond those limitations has been stated in explanatory literature or in the giving of advice about whether to retain membership of a contracted-out scheme or whether to rely on SERPS entitlements, that is something which I cannot consider in the present decision.
20. It follows from what I have said above that I find no significance in the fact that the Pension Schemes Act was a consolidating Act. In my judgment it did consolidate provisions which were in existence before and did not, on its own or in conjunction with the Social Security Act 1986, alter the fundamental mechanism for the adjustment of SERPS entitlement to take account of GMP entitlement. If the claimant has access to a library with a large enough law section, and if modesty allows, I can refer him to a note which I wrote in 1976 which describes the original structure of the SERPS scheme (39 Modern Law Review 321-6 (1976)). The effect of GMPs not being inflation-proofed in the period to retirement, while SERPS entitlements were inflation-proofed, was well-recognised at that time.
21. The claimant also submitted that while an occupational pension scheme was contracted out of SERPS it was the pension provider, so that SERPS entitlements earned in that period were only hypothetical. He said, if I have understood him correctly, that while a person was not a member of a contracted-out scheme SERPS was the pension provider, so that real rights were earned in that period which had to be paid in full on retirement. I reject that submission, as it is inconsistent with what I have concluded above.
22. I know that the term "hypothetical SERPS" is one that is used in official explanations of the working out of state retirement pension entitlements and it was adopted by Mr Commissioner Williams in his generally very helpful and accurate description of the interaction between SERPS and GMPs in CP/4479/2000. However, the term seems to me liable to mislead. I agree with Mr Commissioner Williams that it is the precise scheme of the legislation which must be applied by decision-makers, appeal tribunals and Commissioners, not a secondhand explanation of how the system works. For that reason what he said in paragraph 16 of CP/4479/2000 needs slight qualification.
23. In establishing the extent of entitlement to a category A retirement pension, including the amount of any additional pension, one has to establish a real entitlement under SERPS, not a hypothetical one. And it is not established on an assumption that the person was contracted in to SERPS for all relevant periods. The earnings factors on which entitlement was based remained the same whether a person was contracted-out or contracted-in. It was just that the contributions paid varied. Thus the entitlement to additional pension under SERPS in accordance with sections 44 and 45 of the Contributions and Benefits Act, on contributions made through the whole relevant period, is a real one. Its value might in practice be reduced or completely wiped out by other provisions, but that does not make it hypothetical. Perhaps "gross" might be a better word. Once the entitlement to additional pension under SERPS has been established, the potential adjustment where there is a GMP entitlement must be carried out as described above and in CP/4479/2000. I particularly agree that, as stated in paragraph 16 of CP/4479/2000 the reduction for the existence of a GMP is not technically from the additional pension as such, but from the category A retirement pension as a whole. However, the question raised in paragraph 17 of that decision about whether the reduction could eat into the amount of the basic pension is answered in the negative for practical purposes by the effect of section 46(1)(ii) of the Pension Schemes Act and the final words of the subsection.
24. For those reasons, the claimant's main submissions must be rejected and the appeal tribunal's decision must be set aside as erroneous in point of law. The grounds on which the appeal tribunal found that the decision under appeal was wrong cannot be supported in law.

The Commissioner's substituted decision on the appeal

25. Before I give my decision on the claimant's appeal against the decision of 15 July 1999, I must deal with the additional questions I raised at the oral hearing.
26. The claimant had been in receipt of invalidity benefit, followed by incapacity benefit, for some years before he reached the age of 65 and could take his retirement pension. As part of his invalidity benefit he received an invalidity allowance. This was an allowance of a varying amount payable if a person became incapable of work before a particular age (section 34 of the Contributions and Benefits Act before the amendments to introduce incapacity benefit). It looks as though he was receiving the lowest rate, for becoming incapable before the age of 60. On the transition to incapacity benefit in April 1995, existing recipients of the invalidity allowance were entitled to receive an equivalent increase to their transitional awards of incapacity benefit (Social Security (Incapacity Benefit) (Transitional) Regulations 1995, regulation 18). The increase is called transitional invalidity allowance. In such circumstances the similar increase paid to new recipients of incapacity benefit is not payable (regulation 18(6)).
27. As in force down to April 1995, section 47(1) of the Contributions and Benefits Act required the weekly rate of a category A retirement pension to be increased, subject to subsection (2), by an amount equal to the invalidity allowance where the pensioner had been entitled to the allowance just before reaching pensionable age. Regulation 23 of the Transitional Regulations required section 47(1) to continue to apply after April 1995 as if it covered transitional invalidity allowance. So the claimant was within section 47(1) when he reached pensionable age.
28. However, section 47 continues in what I shall call its standard form as follows:

"(2) Where for any period the weekly rate of a Category A retirement pension includes an additional pension, for that period the relevant amount shall be deducted from the amount that would otherwise be the increase under subsection (1) above and the pensioner shall be entitled to an increase under that subsection only if there is a balance remaining after that deduction and, if there is such a balance, of an amount equal to it.

(3) In subsection (2) above the `relevant amount' means an amount equal to the additional pension, reduced by the amount of any reduction in the weekly rate of the category A retirement pension by virtue of section 46 of the Pensions Act."

Pausing there, the application of that form of section 47(3) to the claimant's circumstances as at 12 April 1999 would have produced the result that he was entitled to receive the balance of his £4.45 increase for the transitional invalidity allowance after the deduction of £3.38 as the amount of the additional pension left after the section 46 reduction. The Secretary of State's written submission to the Commissioner in CP/1412/2002, the other case heard with the present case, mentioned the legislation above, but did not explain how it produced the result which had actually been applied to the two claimants. That is why I required further submissions, drawing attention to the following additional provisions.

29. Section 46(4), (5) and (8) of the Pension Schemes Act provide:

"(4) Where for any period--

(a) a person is entitled to one or more guaranteed minimum pensions;

(b) he is also entitled to a Category A retirement pension under section 44 of the Social Security Contributions and Benefits Act 1992; and

(c) the weekly rate of his pension includes an additional pension such as is mentioned in section 44(3)(b) of that Act,

for that period section 47 of that Act shall have effect as if the following subsection were substituted for subsection (3)--

`(3) In subsection (2) above the `relevant amount' means an amount equal to the aggregate of--

(a) the additional pension; and

(b) the weekly rate or aggregate weekly rates of the guaranteed minimum pensions,

reduced by the amount of any reduction in the weekly rate of the Category A retirement pension made by virtue of section 46(1) of the Pension Schemes Act 1993.'.

(5) Where for any period--

(a) a person is entitled to one or more guaranteed minimum pensions;

(b) he is also entitled to a Category A retirement pension under section 44 of the Social Security Contributions and Benefits Act 1992; and

(c) the weekly rate of his Category A retirement pension does not include an additional pension such as is mentioned in subsection (3)(b) of that section,

for that period the relevant amount shall be deducted from the amount that would otherwise be the increase under section 47(1) of that Act and the pensioner shall be entitled to an increase under that section only if there is a balance remaining after that deduction and, if there is such a balance, of an amount equal to it.

(8) In this section `the relevant amount' means an amount equal to the weekly rate or aggregate weekly rates of the guaranteed minimum pension or pensions--

(a) [repealed by the incapacity benefit legislation];

(b) in the case of subsection (5), reduced by the amount of any reduction in the weekly rate of the Category A retirement pension made by virtue of subsection (1);

and references in this section to the weekly rate of a guaranteed minimum pension are references to that rate without any increase under section 15(1)."

30. That is all dreadfully complicated to work out, and is made even worse by the device of having different forms of section 47(3) of the Contributions and Benefits Act operating for different purposes. Things may possibly become a little clearer after I have explored the origins of the rule in section 47(2) and (3), which I do below.
31. The claimant in the present case clearly comes within section 46(4) of the Pension Schemes Act, so that the alternative form of section 47(3) of the Contributions and Benefits Act set out there has to be applied to him. In his case the reduction under section 46(1) of the Pension Schemes Act would cancel out the amount of the GMP under paragraph (b) of section 47(3). Then the question would be whether "the additional pension" means the gross pension before the section 46(1) reduction or what is left to be paid as part of the category A retirement pension after the reduction had been made. I considered that it was arguable that it meant the latter, because the former meaning would effectively allow the amount of the GMP entitlement to be used twice, one to reduce the amount of the additional pension payable and again to reduce the amount of the increase for the transitional invalidity allowance. I suggested that the latter meaning was more consistent with the structure of the legislation as a whole. I requested submissions on this question.
32. The submission dated 13 December 2002 on behalf of the Secretary of State was that the former meaning referred to in the previous paragraph was the correct one. It was pointed out that under section 46(1) of the Pension Schemes Act the reduction to take account of the existence of GMP entitlement was applied to the weekly rate of the category A retirement pension as a whole. It was not applied specifically to the additional pension as a component part of the category A retirement pension. It was submitted that therefore, when the term "additional pension" was used in any form of section 47(3) of the Contributions and Benefits Act, it referred to the gross entitlements calculated under sections 44 and 45. In reply, the claimant submitted that the additional pension to be taken into account should be whatever was actually paid to the person concerned in addition to the amount of the basic pension. In his case, as from 12 April 1999, that would be £3.38, rather than £60.29.
33. I have concluded that I must reject the claimant's submission. The foundation of the Secretary of State's submission is sound. The reduction under section 46(1) of the Pension Schemes Act is to the rate of the category A retirement pension as a whole, not to the additional pension, as Mr Commissioner Williams has already pointed out. A great deal of the official explanation of the interaction of GMP with additional pension, including several letters to the claimant and the written submission to the appeal tribunal in the present case, refers to the amount of the additional pension being reduced by the amount of the GMP. I can understand why that formula is used for purposes of explanation of the practical result, but it does not describe the exact statutory mechanism. I am satisfied that, as a matter of statutory interpretation, the reference to "additional pension" in the form of section 47(3) of the Contributions and Benefits Act applicable in the present case is to the amount calculated under section 45, ie the gross SERPS entitlement. That is consistent with what I have said above about the SERPS entitlement to an additional pension, before taking account of any entitlement to a GMP, being a real entitlement. It is also plainly what the words mean in the standard form of section 47(3) (see paragraph 27 above). That form of section 47(3) makes the relevant amount the amount of the additional pension as reduced by the amount of any reduction under section 46 of the Pension Schemes Act to take account of GMP entitlement. For that formula to work, the additional pension must refer to gross SERPS before taking account of GMP entitlement. There is consistency in the same meaning applying in the alternative forms of section 47(3).
34. I would not have been happy to rest my decision entirely on that dry and technical exercise in statutory interpretation. It produces a result which appears to allow the amount of the GMP to be used twice over, first to reduce in practice the benefit which a person can gain from an entitlement to an additional pension through SERPS and again to reduce or remove the increase for the transitional invalidity allowance. I therefore investigated the origin of the rule about the reduction of that allowance, to see what the intention was.
35. The rule was not imposed for the first time in the 1992 or 1993 consolidations. I have traced it back to section 9 of the Social Security Act 1985, which inserted a number of provisions into the Social Security Act 1975. Before the coming into force of that section on 16 September 1985 a person who was in receipt of an invalidity allowance on reaching pensionable age could continue to receive it in full while also receiving a category A retirement pension. The original policy behind the introduction of the invalidity allowance in 1971 had been to compensate the chronically sick or disabled for the inability to build up entitlements to the earnings-related elements of contributory benefits, including retirement pensions, while being unable to work because of illness, accident or disablement. However, in 1984 the Government took the view that significant numbers of such people had in fact been able to build up earnings-related entitlements, as through SERPS, and that there was an overlap in paying people for not having been able to build up entitlements when in fact they had. That was made very clear in the discussion of the proposal in Parliament (see, for instance, Mr Tony Newton introducing the proposal on 26 November 1984, House of Commons Hansard, Vol 68, col 711). The rule was therefore introduced to offset the amount of the earnings-related component in a number of benefits, including category A retirement pension, against the amount of invalidity allowance that would otherwise have been payable.
36. The rule was initially rather more clearly expressed than in the current legislation. New subsections were inserted in section 28 of the Social Security Act 1975 on category A retirement pensions. Subsection (7A) imposed the deduction from the increase for the invalidity allowance (a) if the weekly rate of the pension included an additional component or (b) if the claimant was entitled to a GMP. If only (a) or (b) applied, the relevant amount was an amount equal to the additional component or to the weekly rate of the GMP or GMPs, respectively (subsection (7B)(a) and (b)). The relevant amount to be deducted if both (a) and (b) applied was (subsection (7B)(c)):

"an amount equal to the aggregate of the amounts referred to in paragraphs (a) and (b) above, reduced by the amount of any reduction in the weekly rate of the Category A retirement pension made by virtue of section 29 of the [Social Security Pensions Act 1975]."

Section 29 of the Social Security Pensions Act 1975 was the equivalent of section 46(1) of the Pension Schemes Act. There can be no doubt that the formula laid down was to add the calculated amount of the additional component, ie gross SERPS, to any GMP entitlement and then to reduce the total by the amount of reduction in category A retirement pension to take account of the GMP entitlement. The result would be the claimant's overall net earnings-related entitlement, earned through SERPS and GMPs combined. That made sense in the light of the intention of the legislation. If a claimant had built up an earnings-related entitlement, whether solely through SERPS or through SERPS and GMPs in combination, the net amount should, to be consistent with the intention, go to reduce the amount of any increase for the invalidity allowance.

37. The effect of section 9 of the Social Security Act 1985 can be traced through to the current legislation. There was a further amendment by the Social Security Act 1986 to replace the reference to an additional component by a reference to an additional pension. Then in the 1992 consolidation the provisions were moved into the Social Security Pensions Act 1975 with an operation by substituting alternative forms of section 47(3) of the Contributions and Benefits Act (Social Security (Consequential Provisions) Act 1992, Schedule 2, paragraph 24, inserting new sections 29A, 29B and 29C into the 1975 Act). Finally, the 1993 consolidation took the effect of the provisions into section 46(3) to (8) of the Pension Schemes Act.
38. The Secretary of State's interpretation of the current legislation still makes sense in the light of its purpose. The purpose in relation to category A retirement pensions is to reduce the amount of the increase for the transitional invalidity allowance by the net amount of earnings-related entitlement that the claimant has, whether that is made up of an additional pension alone, a GMP alone or some combination of the two. It is not a question of the amount of the GMP being used twice over to the disadvantage of the claimant, but of the amount of the GMP being a factor in the calculation of the net earnings-related entitlement.
39. For those additional reasons I accept the submission of 13 December 2002 on behalf of the Secretary of State. I might be said to have made mountains out of molehills, but since I had raised hopes on the part of the two claimants concerned in the two appeals by suggesting an interpretation in their favour, it was necessary to explain fully why I could not adopt that interpretation.

Conclusion

40. The result is that the treatment of the increase for the transitional invalidity addition in the decision under appeal was correct in law. I have already concluded that the Secretary of State's calculation of the amount of the category A retirement pension was not wrong in law on the grounds put forward by the claimant and accepted by the appeal tribunal. My substituted decision on the claimant's appeal against the decision dated 15 July 1999 is therefore to confirm the effect of that decision, as is set out in paragraph 1 above.

(Signed) J Mesher

Commissioner

Date: 30 July 2003