UK Social Security and Child Support Commissioners' Decisions

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Cite as: [2004] UKSSCSC CP_2291_2004

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PLH Commissioner's File: CP 2291/04

SOCIAL SECURITY ACTS 1992-1998

APPEAL FROM DECISION OF APPEAL TRIBUNAL

ON A QUESTION OF LAW

DECISION OF THE SOCIAL SECURITY COMMISSIONER

Claim for: Retirement Pension

Appeal Tribunal: Oxford

Tribunal Case Ref: U/04/048/2003/01374

Tribunal date: 4 February 2004

Reasons issued: 19 April 2004

[ORAL HEARING]

This appeal by the Secretary of State must be allowed, as in my judgment the tribunal consisting of a chairman sitting alone at Oxford on 4 February 2004 plainly misconstrued the relevant legislation in section 44 Social Security Contributions and Benefits Act 1992 and section 46 Pensions Schemes Act 1993 on how the claimant's category A retirement pension ought to have been calculated.

I set the decision aside and as none of the actual figures to be used in the calculation is in any way disputed I exercise the power in section 14(8)(a) Social Security Act 1998 to substitute the decision I am satisfied the tribunal ought to have given, namely that the original departmental calculation of the claimant's pension was correct and is confirmed. The category A pension from the national insurance scheme to which he became entitled following his attainment of state pensionable age on 18 June 2003 was a pension of £162.97 a week starting on the following Monday, 23 June 2003.

This is made up of a full basic pension of £77.45, plus graduated retirement benefit under the pre-1978 earnings-related scheme of £6.18, plus earnings-related additional pension attributable to relevant years from 6 April 1978 to 5 April 1997 of £99.26, less his total guaranteed minimum pension from occupational schemes attributable to periods of contracted-out employment within those years of £23.83 (which has to be offset £ for £ against the £99.26 under section 46(1) Pensions Schemes Act 1993), plus further earnings-related additional pension attributable to periods of employment after 5 April 1997 (not subject to that offset) of £3.91.

In particular I confirm that the offset calculation under section 46(1) must by the plain and unambiguous words of the legislation be carried out by subtracting the total of the guaranteed minimum pension entitlement derived from any one or more occupational schemes or periods of contracted-out employment falling within the years from 6 April 1978 to 5 April 1997 from the total category A additional pension entitlement derived from the whole of those years regardless of which were the actual periods of contracted-out employment falling within them. The claimant's argument, which he persuaded the tribunal chairman to accept, was that instead of that simple subtraction a series of distinct calculations should be done so as to apportion the category A entitlement between periods of contracted-out and contracted-in employment, restrict any offset under section 46(1) to the former, and so increase his net pension from the state by £6.47 a week; but that is simply not what the section says.

I held an oral hearing of the appeal which had been directed at the claimant's request. Vaughan Lewis of the solicitor's office, Department for Work and Pensions, appeared for the Secretary of State. The claimant appeared in person as respondent and conducted his own case, as he had done at the tribunal where the Secretary of State failed to appear.

The claimant is a man now aged 66. As recorded by the tribunal he holds an accountancy qualification and was a director of various companies until his retirement. His working life included a relatively short period of contracted-out employment spread over the tax years 6 April 1978 to 5 April 1981 when he was an active member of his employer's occupational scheme. His preserved entitlement under that scheme included a guaranteed minimum pension payable to him from state pensionable age of an amount initially calculated, in 1981 when he ceased to be in contracted-out employment, as only £3.96 a week; but by the time he qualified to draw it at 65 this had grown to £23.83 a week by the effect of the fixed-rate annual compound increases the scheme had been obliged to add to it throughout the period of deferment, under the regulations permitting it to be recognised for the purpose of contracting-out his employment (which involved a substantial rebate in both employers' and employees' national insurance contributions).

The claimant is dissatisfied that the whole of that £23.83 should have to be offset under section 46(1) when it comes to calculating how much of his total earnings-related pension entitlement remains payable from the national insurance scheme. As he understands it, the starting weekly rate of additional pension he would have got if his years of contracted-out employment had been contracted-in and were taken in isolation would have been only £17.36; so why should any more be deducted from his £99.26? He also used the oral hearing to express at some length his dissatisfaction about a good many other points too; but in this decision I will deal only with those having any bearing on the proceedings before me, and on the correctness of the tribunal's calculation.

The tribunal's grounds for accepting the claimant's arguments appear from the following passage in its statement of reasons issued to the parties on 19 April 2004:

"14. Section 46(1) covers any period when a person is entitled to both:

(a) a category A or category B of [sic] Retirement Pension;

(b) a guaranteed minimum pension

15. In [the claimant's] case this period covers tax years 1978/1979, 1979/1980 and 1980/1981. ... [the claimant] is not entitled to the GMP for the tax years 1981/1982 until retirement. He is entitled to AP for that period resulting from National Insurance contributions in contracted-in employment.

16. The weekly rate of benefit for the period defined in S.46(1) referred to above shall be reduced by an amount equal:

(a) to the additional pension attributable to earnings factors, or

(b) the weekly rate of GMP

whichever is the less. The ... Pensions Service conveniently overlook the key phrase "for that period" when stating their interpretation of Section 46(1). In [the claimant's] case the summation of notional AP for the period defines [sic] in Section 46(1) being tax years 1978/1979 to 1980/1981 is £17.36. This is less than the GMP payable by Friends Provident [administrator of the occupational scheme] for these tax years. Therefore I do not have any entitlement to AP for the contracted-out period. The objective of Section 46(1) is to provide a residual right to additional pension from SERPS in respect of contracted-out employment where GMP is less than notional additional pension. ... Section 46(1) does not provide for the reduction of AP earned by National Insurance contributions during contracted-in employment where GMP is greater than AP for the period when a person is entitled to both State Retirement Pension and GMP.

17. Section 46(1) as demonstrated above requires the calculation of AP for any period where a person is entitled to both State Retirement Pension and the GMP. This calculation was not made. Perhaps this was because of a specific instruction from the Treasury and Department of Work and Pensions or the Inland Revenue in notifying the Pension Service of contributions prior to 5^th April 1997 and not differentiating between contracted-out and contracted-in employment."

The Secretary of State's case against that was simply that it failed to give effect to the plain words of the primary legislation as already confirmed in other cases by Commissioners. Under section 44 of the 1992 Act a person becomes entitled to a category A retirement pension if over pensionable age and satisfying the contribution conditions, which there is no dispute this claimant is and does. By section 44(3) such a pension is to consist of two elements, each computed as a single weekly amount even though the process of calculating it may well involve a number of separate subsidiary calculations, and these are:

(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.

The "relevant years" in relation to this claimant are all the tax years from 6 April 1978 down to 5 April 2003, and at this stage of the calculation his earnings-related additional category A pension under section 44 is the "gross" amount derived from the amount of his earnings throughout the whole of those years, without regard to whether the whole of that additional pension is going to be provided directly from the national insurance fund or whether part of the responsibility for it has been shifted to the private sector by reason of his employment having been at some time contracted-out so as to give him a guaranteed minimum entitlement of some amount from an occupational scheme.

How that responsibility is to be split between the state and occupational funds in such a case is separately provided for in what is now section 46(1) of the 1993 Act, by which (as in force when the claimant qualified for his pension on reaching 65):

"46. (1) Where for any period a person is entitled both –

(a) to a category A … retirement pension …; 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 [6 April 1997], 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."

In the submission of the Secretary of State the tribunal chairman's restriction of the offset calculation to a notionally apportioned part of the claimant's category A additional pension, as if his years of contracted-out employment from 1978 to 1981 were the only years to be taken into account in calculating category A pension for the purposes of section 46, was simply wrong. It was not disputed that such a method would have produced a lower deduction, since the starting weekly rate of a notional category A additional pension calculated on that basis would have been only £17.36, but it was contrary to what section 46 required. The section allows no scope for notionally splitting or leaving out of account any part of the actual weekly additional pension, beyond the express exclusion in section 46(1)(i) itself of the part attributable to earnings factors for tax years after 5 April 1997, which did not assist the claimant. The decision in effect awarded the claimant an unauthorised pension increase of £6.47 a week from the starting date of 23 June 2003 and should be reversed so as to restore the original £162.97.

The claimant put forward three arguments that were of relevance on the appeal. First he said that section 46 of the 1993 Act was in any event irrelevant to his case since it had not been enacted at the time of his contracted-out employment in 1978-81 and could not be applied to those years retrospectively. If that was wrong he disputed the department's interpretation of section 46 and contended that the offset of his GMP entitlement should be applied only to category A pension attributable to past periods of contracted-out employment as he had consistently argued and the tribunal chairman had accepted: this produced the lower deduction of only £17.36 and the resultant starting weekly rate of £169.44 for his category A retirement pension as held by the tribunal. Thirdly he disputed the starting date from which this rate should apply and contended that the tribunal should have held him entitled to it from 18 June 2003 when he actually attained pensionable age, instead of the start of the next benefit week on Monday 23rd.

There is nothing in the claimant's first and third points. Section 46 of the Pension Schemes Act 1993 applies to govern the calculation of his weekly category A retirement pension from the time he attained pensionable age in June 2003, because that was the Act of Parliament in force at that date which governed the calculation of pensions for people in his position who had past periods of contracted-out employment. There is nothing that infringes the general presumption against retrospective legislation in an Act of Parliament defining a present or future entitlement in a way that takes account of past events; but in any case the offset provision for GMP entitlements has been in the pensions legislation in substantially the same form for as long as there has been provision for GMPs themselves, that is since the inception of the present contracting-out system in 1978: see section 29(1) Social Security Pensions Act 1975. As to his point on the commencement date it is well established that the national insurance retirement pension is a weekly benefit, and the legislation validly provides that entitlement to it commences only at the start of the first full benefit week for which the claimant meets the condition of being over pensionable age: see R(P) 2/73. (Conversely there is no clawback of any proportion for the final benefit week when a person dies). As stated by the Commissioner in R(P) 2/73 there is no question of this constituting "discrimination" against claimants, even though the operation of the rule may affect different people differently by the equivalent of a few days' benefit one way or other; nor in my judgment is such an argument any more tenable under the Human Rights Act 1998 which the claimant sought to pray in aid. His suggestion that the rule by which his entitlement did not start until the first full week for which he met the age condition amounted to depriving him of something he already possessed was equally unarguable.

That leaves the argument on the calculation of the offset under section 46(1) itself. On this in my judgment the Secretary of State is plainly right and the claimant and the tribunal plainly wrong. What section 46(1) requires is a simple subtraction involving two, and only two, weekly benefit amounts for the period of weekly benefit entitlement for which the statutory offset is required: in the present case the first week of entitlement to category A retirement pension following the claimant's 65th birthday. Those two amounts are (a) the category A additional pension entitlement for that week under section 44 of the 1992 Act, excluding any part attributable to tax years after 5 April 1997; and (b) the aggregate weekly rate of any concurrent GMP entitlement the pensioner has from his occupational scheme. Amount (b) must be subtracted from amount (a), and the state's liability to him for category A additional pension for that week on earnings for the years 1978-1997 is limited to the amount, if any, that is left.

The claimant thus gets in total the weekly category A additional pension that Parliament in section 44 of the 1992 Act has laid down he should get: to the extent that he has GMPs, he gets his additional weekly entitlement in that form from his occupational scheme, and does not get paid the same amount over again from the state. Whether that split of responsibility between the private and public sectors for funding his additional pension has turned out better for one side or the other as regards particular past years is irrelevant. (In fact the disparity even in the present case is less than at first sight appears: although the occupational scheme assumed responsibility for revaluing the claimant's initial £3.96 GMP at 8.5% compound during his long period of deferment from 1981, its share of the liability from state pensionable age stays fixed at £23.83, while the whole of the category A pension is inflation-proofed from then on by the state.)

There is no scope for actual or notional apportionment of the category A weekly amount under section 46(1) so as to separate off some part as attributable to a particular period or type of contribution in the years 1978-1997, and restrict the offset only to that; such a method of calculation is simply not what the section provides. The words "Where for any period a person is entitled both - " refer, and can only refer, to the current weekly or other period in which the person is entitled to receive both a category A retirement pension and a guaranteed minimum pension; not any past period or periods of employment or contribution by reference to which that entitlement is calculated or has accrued. That in my judgment is quite plain from the words and context of section 46(1) itself and is confirmed by the use of the same expression "for any period" elsewhere in section 46 to refer to current weekly benefit entitlements not calculated on an accrual basis at all, for example the long-term incapacity benefit dealt with in section 46(3).

The contention raised by this claimant and accepted by the tribunal has already been considered and rejected in at least two other Commissioners' decisions, in cases CP 1318/01 and CP 1023/04. It is a pity that the tribunal did not have its attention drawn to the first of these authorities, in which the decision disposing of the identical point had already been given six months before the tribunal hearing of 4 February 2004. I agree with the Commissioner's succinct and unanswerable rejection of the point, when he said (in CP 1318/01 paragraph 16, also quoted in the later decision) that there is no scope within the legislation for there to be a separation of periods in which a person does not contract 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. I also agree with the decision of the deputy Commissioner in CP 1023/04 that there is nothing contrary to the Human Rights Act in this result. It cannot be said to deprive the claimant of anything to which he was otherwise entitled, nor does it discriminate against him. In any case, section 46(1) is unambiguous primary legislation which I have no power to disregard or try to read in a sense the words will not bear.

The appeal is allowed and my decision substituted accordingly. The claimant's category A retirement pension entitlement from the state scheme commenced on 23 June 2003 and its starting rate was the weekly amount of £162.97 made up as explained in paragraph 3 above and no more.

(Signed)

P L Howell

Commissioner

10 December 2004