Upper Tribunal (Administrative Appeals Chamber)

IN THE UPPER TRIBUNAL Appeal No. CPC/1648/2009

ADMINISTRATIVE APPEALS CHAMBER

Before Robin C A White, Judge of the Upper Tribunal

Decision: The decision of the tribunal of 12 January 2009 is erroneous in law and I set it aside. I remake the decision which the Tribunal should have made.

My substituted decision

The appellant is not entitled to pension credit on her claim made on 20 June 2008 because pension credit is a special non-contributory benefit within Article 10a of Regulation 1408/71 which is payable only to those living in Great Britain.

REASONS FOR DECISION

The issue in this appeal

1.       The issue in this appeal is whether pension credit is an exportable benefit within the scope of Regulation 1408/71/EC such that the appellant can receive this benefit now that she is living in Spain.

Background

2.       The appellant, who was born on 18 February 1932, was in receipt of pension credit from its introduction on 6 October 2003, receiving both a guarantee credit and a savings credit.

3.       It would appear from the file that payment of pension credit stopped with effect from 1 March 2004 when the appellant moved permanently to Spain.

4.       On 20 June 2008 the appellant claimed a pension credit, and asked for any award to be back-dated to 1 March 2004. She said that she believed she was entitled to receive the benefit in Spain through the operation of European Union Law.

5.       The claim was refused on the grounds that the benefit was not exportable, and that the appellant was not resident in Great Britain.

6.       That decision was upheld on review and before the First-tier Tribunal.

7.       The appeal now comes before me by leave of a Tribunal Judge. A Judge of the Upper Tribunal directed the Secretary of State to provide a submission addressing the application of Regulation 1408/71 to pension credit, and to consider any other provisions of European Union Law which might apply to the appellant in relation to her claim for pension credit.

The Tribunal’s decision

8.       The Tribunal’s decision is brief and to the point. The operative paragraphs read:

4. There is no dispute that the appellant is not living in Great Britain and that she moved to permanently live in Spain in 2004.

5. Section 1 of the State Pension Credit Act 2002 provides that to be entitled to State pension credit a person must satisfy basic conditions of entitlement including that the appellant is in Great Britain. The appellant fails to satisfy that condition of entitlement.

6. The EU Regulations quoted by the appellant do not apply to State pension credit and cannot assist in resolving the appeal in the appellant’s favour. The State Pension Credit Act 2002 contains the overriding condition that the appellant must be in Great Britain in order to be entitled to State pension credit.

The appellant’s submissions

9.       The appellant, who is not represented, puts forward a number of arguments. She believes that the benefit is one which is exportable under Regulation 1408/71, because it is an old age benefit within the scope of the Regulation. She says that her circumstances have not changed since she received the benefit.

10.   The appellant raises points in relation to the two components of pension credit. The appellant said that she had earned the right to savings credit through her savings for her own pension.

The Secretary of State’s submissions

11.   The Secretary of State refers to the requirement in the State Pension Credit Act 2002 requiring a claimant to be ‘in Great Britain’. Regulation 2(1) of the State Pension Credit Regulations 2002 provides that a person is only ‘in Great Britain’ if they are habitually resident in the United Kingdom, the Channel Islands, the Isle of man or the Republic of Ireland.

12.   The Secretary of State then refers to Articles 2, 4, 10 and 10a of Regulation 1408/71, and to the inclusion in Annex IIa of State pension credit.

13.   The Secretary of State concedes that the appellant is within the personal scope of the Regulation, but argues that pension credit is a special non-contributory benefit listed in Annex IIa, whose payment can be restricted to persons in Great Britain.

14.   The Secretary of State further argues, relying on Case C-160/02 Skalka, [2004] ECR I-5613, and Case C-265/05, José Perez Naranjo, [2007] ECR I-347, that pension credit is genuinely a special non-contributory benefit applying the tests laid down in those cases.

15.   The Secretary of State urges me to dismiss the appeal since the First-tier Tribunal had come to the correct conclusion that pension credit was not an exportable benefit.

The Upper Tribunal’s assessment

United Kingdom law

16.   Pension credit was introduced from 6 October 2003 by the State Pension Credit Act 2002. Pension credit was the successor to income support for pensioners. Its purpose was to address the issue of poverty among pensioners.

17.   Under section 1 of the Act, the benefit is described as a ‘social security benefit.’ There are three conditions of entitlement: (1) the claimant must be in Great Britain; (2) the claimant must have attained the qualifying age (which is currently 60 for a guarantee credit and 65 for a savings credit); and (3) the conditions set out in section 2 for a guarantee credit, and in section 3 for a savings credit must be met. Entitlement is not dependent upon having paid National Insurance contributions.

18.   Pension credit consists of two components: a guarantee credit and a savings credit. The guarantee credit tops up the income of a person over the age of 60 to a minimum income guarantee level. The savings credit is an additional sum for those aged 65 or more who have low or modest private incomes, usually in the form of an occupational pension and/or income from savings. The benefit is means tested.

19.   Section 20 of the State Pension Credit Act 2002 provides as follows:

Financial provisions

20.—(1) There shall be paid out of money provided by Parliament—

(a) any sums payable by way of state pension credit;

(b) any expenditure incurred by the Secretary of State or other government department under or by virtue of this Act; and

(c) any increase attributable to this Act in the sums payable out of money so provided under any other Act.

(2) … .

Regulation 1408/71

20.   It is common ground that the appellant is within the personal scope of Regulation 1408/71, the European Union Regulation which co-ordinates the social security systems of the Member States. It is equally common ground that the appellant at all material times resided in Spain. Residence under the Regulation means ‘habitual residence.’

21.   The dispute concerns the classification of the benefit within the scheme of the Regulation.

22.   Regulation 1408/71 applies by virtue of Article 4(1)(c) to the branch of social security relating to what are described as ‘old-age benefits.’

23.   However, under Article 4(2a)—which was amended with effect from 5 May 2005 by Regulation 647/2005/EC to clarify certain requirements—the Regulation applies (so far as relevant to the appeal before me) to benefits which are provided under legislation or schemes other than those referred to in Article 4(1), where such benefits are intended to provide supplementary, substitute or ancillary cover against the risks covered by the branch of social security referred to in Article 4(1)(c). I do not regard the 2005 amendment as having any significant effect on the determination of this appeal. I have considered both versions of the provision since the appellant’s claim was made in June 2008 but requested that any award be back-dated to March 2004.

24.   Article 10a (in its form prior to 5 May 2005) provided:

Notwithstanding the provisions of Article 10 and Title III, persons to whom this Regulation applies shall be granted the special non-contributory cash benefits referred to in Article 4(2a) exclusively in the territory of the Member State in which they reside, in accordance with the legislation of that State, provided that such benefits are listed in Annex IIa. Such benefits shall be granted by and at the expense of the institution of the place of residence.

25.   Article 10a reads with effect from 5 May 2005 (amendments made by Regulation 647/2005/EC) as follows:

The provisions of Article 10 and Title III shall not apply to the special non-contributory benefits referred to in Article 4(2a). The persons to whom this Regulation applies shall receive these benefits exclusively in the territory of the Member State in which they reside and under the legislation of that State, in so far as these benefits are mentioned in Annex IIa. Benefits shall be paid by, and at the expense of, the institution of the place of residence.

26.   Annex IIa lists, under the United Kingdom entry, state pension credit under the State Pension Credit Act 2002.

27.   There is accordingly a prima facie case that pension credit is a special non-contributory benefit which cannot be exported from the United Kingdom.

28.   However, while listing of a benefit in Annex IIa is a necessary condition of being able to limit the exportability of a benefit under Article 10a, the Court of Justice of the European Communities (“the Luxembourg Court”) has determined that such benefits may be examined to see whether they are properly included in Annex IIa as special non-contributory benefits: Case C-215/99 Jauch, [2001] ECR I-1901, and Case C-43/99 Leclere, [2001] ECR I-4265.

29.   Two judgments of the Luxembourg Court are directly in point in relation to benefits like pension credit.

30.   Case C-160/02, Skalka, [2004] ECR I-1771, was a reference from the Austrian courts and concerned an Austrian national living in Spain. He claimed a compensatory supplement to top up an early retirement pension. The early retirement pension was paid on the basis of a lengthy period of insurance. The question before the Luxembourg Court was whether the benefit constitutes a special non-contributory benefit whose payment could be restricted to those living in Austria.

31.   The Luxembourg Court ruled that, in order to constitute a special non-contributory benefit, a benefit must be both special and non-contributory. The Luxembourg Court considered the benefit to be a special benefit because it :

… tops up a retirement pension or an invalidity pension. It is by nature social assistance in so far as it is intended to ensure a minimum means of subsistence for its recipient where the pension is insufficient. Its grant is dependent on objective criteria defined by law. Consequently, it must be classified as a ‘special benefit’ within the meaning of Regulation 1408/71. (§26)

32.   The Luxembourg Court went on to consider whether the benefit was non-contributory. The Court observed, at paragraphs 28 and 29, that the relevant determining criterion is how the benefit is actually financed. The benefit was funded by the national budget. Contributions from insured persons did not form part of the financing arrangement. Accordingly the benefit was a non-contributory benefit.

33.   The Advocate General in the case notes, at paragraph 36 of her Opinion, that a benefit paid as a supplement or as ancillary to a contributory benefit is not thereby rendered a contributory benefit.

34.   The second case is Case C-265/05 José Perez Naranjo, [2007] ECR I-347, which concerned a Spanish national who had worked in France but then returned to Spain. He was in receipt of a French old-age pension, and claimed a supplementary allowance to top up his pension. The French courts referred a question concerning the exportability of the supplementary allowance.

35.   Again the Luxembourg Court said that the test was whether the benefit was both special and non-contributory. In considering whether the benefit in issue was a ‘special’ benefit, the Court observed:

The Court has already held that a special benefit … is defined by its purpose. It must either replace or supplement a social security benefit and be in the nature of social assistance justified on economic and social grounds and fixed by legislation, setting objective criteria … . (§32)

36.   The Luxembourg Court continued:

… the supplementary allowance is intended to ensure a minimum means of subsistence for its recipient where the retirement pension is insufficient. It is paid to persons who have reached pensionable age and whose total income falls below a statutory threshold. The amount of that allowance, which supplements the income of recipients up to the statutory threshold, therefore varies according to that income. Personal needs, that is to say the individual personal circumstances of each recipient, are of fundamental importance. Furthermore, it is clear from the information provided by the national court that the grant of the supplementary allowance is not linked to any condition relating to periods of employment or to the payment of contributions. (§34)

37.   The Luxembourg Court re-iterated that the test for determining whether a benefit was non-contributory is to consider how it is financed. In the case before it, where there was a link to what is described as ‘a general social contribution’, there must be an identifiable link between the general social contribution and the supplementary allowance in issue before the allowance could be classified as a contributory benefit.

38.   When I apply both the terms of Regulation 1408/71 and the guidance contained in the judgments of the Luxembourg Court to pension credit, I conclude that it is a special non-contributory benefit for the reasons set out below.

39.   Pension credit is listed in Annex IIa.

40.   Pension credit is supplementary or ancillary to old-age benefits by reasons of the age qualifications for its payment. It has strong features of social assistance in that it is means-tested. Its purpose is to provide a minimum income guarantee for elderly persons.

41.   I do not consider that the presence of a savings credit as a reward for those with private income affects the categorisation of the benefit as a special benefit. The savings credit, like the guarantee credit, is means-tested.

42.   Pension credit is a non-contributory benefit. Entitlement is not dependent on the payment of contributions and there is no direct link in its funding to monies received by virtue of National Insurance contributions.

43.   National Insurance contributions are paid by employed and self-employed persons during their working lives, and build an entitlement to a State pension, and to certain other contribution-based benefits. National Insurance contributions cease to be paid when a person reaches State pensionable age. There is no direct link between such contributions and the funding of payments of pension credit.

44.   Since I conclude that pension credit is properly categorised as a special non-contributory benefit within Regulation 1408/71, it follows that its payment can be limited to those living in Great Britain.

45.   The appellant raises the question of a possible entitlement under Regulation 883/2004. This Regulation replaces Regulation 1408/71 with effect from 1 May 2010. It does not change the position in relation to the regime for special non-contributory benefits under Regulation 1408/71. Since it is not yet in effect, the appellant cannot rely upon it.

46.   I have been unable to identify any other provision of European Union law which would assist the appellant with her claim for pension credit to be paid in Spain.

47.   That exhausts consideration of the appellant’s rights in the United Kingdom in relation to her claim for pension credit.

48.   It does, however, occur to me that the appellant would seem now to have acquired permanent resident status in Spain as defined by Directive 2004/38/EC on the right of citizens of the Union and their family members to move and reside freely within the territory of the Member States. Article 16 of that Directive introduces the concept of permanent residence which is acquired after five years of lawful residence in a Member State other than that of the person’s nationality. Article 24 of the Directive provides that a person with permanent resident status must be treated in every respect equally with nationals of the host Member State. If there is a top up benefit for pensioners of limited means provided under the Spanish social security system, the appellant should have access to it.

49.   In making the remarks in paragraph 48, I must stress that I am not aware of any such benefit (I am not familiar with details of the benefit system in Spain). I should also stress that any claim would be determined by the competent institutions in Spain and would not be the concern of the social security authorities in the United Kingdom. The appellant might be well advised to seek advice on such matters in Spain.

Did the tribunal err in law?

50.   Though the First-tier Tribunal reached the right conclusion, its decision is inadequately reasoned, and for this reason I set it aside.

51.   The decision of the Tribunal does not explain the concept of special non-contributory benefits, and could be taken to suggest that where there is a conflict between national law and European Law, national law prevails. The opposite is, of course, the case. In any conflict between national law and European Union law, European Union law prevails.

52.   This is a case in which it is appropriate for me to substitute my own decision for that of the Tribunal. My substituted decision appears at the head of this decision.

Signed on the original Robin C A White

On 31 March 2010 Judge of the Upper Tribunal