Pearce v Secretary of State for Work & Ors [2005] EWCA Civ 453

Case No C3 2005/0551[2005] EWCA Civ 453
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE SOCIAL SECURITY COMMISSIONERS
DEPUTY COMMISSIONER WHITE
Case numbers CP/1023/2004 and CP/1025/2004
Venue Royal Courts of Justice, Strand, London, WC2A 2LLDate Monday, 25 April 2005
Before
LORD JUSTICE LLOYD
Between
RITA PEARCEAppellant
for The Appellant did not appear
Judgment
[1]This judgment is given on an application for permission to appeal by Ms Rita Pearce. The application was due be heard on 25 April 2005. A few days before that, Ms Pearce informed the court that, unfortunately, she had suffered an injury and would not be able to attend to present her case. She had submitted substantial written materials, and she said that she did not wish to add to what she had already said, and would not object to the hearing going ahead in her absence. I have had the benefit of the full and well-researched written submissions made by Ms Pearce, as well as of the decision appealed from and written submissions put in by both Ms Pearce and the Respondents below. Because of the importance of the point to Ms Pearce and the care with which she has prepared the case, it seemed to me sensible to set my reasons down in writing, and to hand the judgment down at the hearing albeit in the absence of the parties.[2]Ms Pearce’s application is for permission to appeal from a decision of the Social Security Commissioners (Deputy Commissioner White) in two joined cases. She contends that her State retirement pension has been calculated wrongly, and that an additional sum of £40 odd per week should have been paid to her as from her retirement in 2002.[3]She reached the State pension age for women on 1 February 2002 and claimed a State pension then. She had been employed and a member of occupational pension schemes. Between 6 April 1978 and 30 November 1984 she was a member of a scheme which was contracted out of the State Earnings Related Pension Scheme (SERPS). She had been a member of the same scheme for some years before that, but 6 April 1978 was the first date on which contracting-out took effect, with the replacement of the previous State graduated retirement pension scheme by SERPS.[4]She left the occupational pension scheme in question (the Exxon Mobil scheme) entitled to benefits which are the subject of the preservation of benefits legislation, and in particular entitled to a guaranteed minimum pension (GMP) which at that date stood at £15.56 per week. That had been increased under the relevant legislation by 1 February 2002 to £57.40.[5]After leaving that employment she joined another occupational pension scheme which was contracted-in (a convenient, even if misleading, shorthand for “not contracted-out”) to SERPS. Accordingly, for that period of employment she does not have a GMP. Instead she is entitled to an additional State pension. Her entitlement by way of additional pension was calculated, after her retirement, at £69.58 (misstated as £62.58 in some of the documents) for the period from 6 April 1978 up to 5 April 1997 and £4.21 for the period after 6 April 1997.[6]Her basic State retirement pension was £72.50. Her entitlement to a graduated retirement pension was £3.99. No question arises as to either of these elements in the calculation of what is payable to her. The issue arises as to her additional pension and the relevance to that of her GMP entitlement. The Department of Work and Pensions calculated this as follows. Pre-1997 additional pension £69.58less contracted out deduction £57.40plus post-1997 additional pension £4.21net amount £16.39[7]Ms Pearce challenges the deduction of the £57.40. One of her contentions is that the amount deducted should be no more than £15.56. Another argument would accept the deduction only as against additional pension attributable to the period during which she was a member of the Exxon Mobil scheme, rather than for the whole period from 1978 to 1997.[8]A GMP must be increased during the period between the person entitled to it leaving the relevant pensionable employment and the State pension age, under section 16 of the Pension Schemes Act 1993 (PSA). Ms Pearce’s submissions appear at one point to assume that the revaluation obligation arises under PSA section 87 and does not apply to those, such as herself, who left the relevant employment before 1 January 1985. That is not so. The point of section 87 is different from that of section 16. Schemes have a choice between two methods as to how they increase GMP, but not as to whether they do. In the Exxon Mobil scheme a fixed rate of 8.5% per year was used, which is the rate specified, for those leaving service before 6 April 1988, by the Occupational Pension Schemes (Contracting Out) Regulations 1996, reg. 62.[9]Ms Pearce appealed against the Board of Inland Revenue’s decision as to her GMP and against the Department’s decision as to the amount of her State retirement pension. In fact no question arises as to the GMP as such; the only issue is as to its relevance to the calculation of the State retirement pension. The Appeal Tribunal for Social Security, Child Support and Vaccine Damage heard both appeals together on 22 October 2003 and dismissed both. Ms Pearce then appealed further to the Social Security Commissioners. Both she and the Department put in written submissions. The Deputy Commissioner gave his decision in writing on 27 October 2004 and refused Ms Pearce permission to appeal on 3 February 2005. As is her right, she seeks permission to appeal from the Court of Appeal.[10]No question arises in these proceedings as to Ms Pearce’s entitlement to pension benefits under the Exxon Mobil pension scheme, or under any other scheme of which she has been a member. The question is as to her State retirement pension, which is a social security benefit, rather than deferred pay which pension entitlement under an occupational pension scheme represents. Ms Pearce in her written submissions asserts that SERPS is subject to the law relating to occupational pension schemes. She is wrong about that. SERPS is not a means-tested benefit, but it is nevertheless a social security benefit, and quite different from the private benefits afforded by occupational pension schemes as a matter of legal entitlement under trust law. However, undoubtedly the question at issue involves the interaction between the legislative provisions as to the State retirement pension and the separate provisions for the regulation of entitlements under an occupational pension scheme, where the scheme is contracted-out of SERPS.[11]The section at the centre of the debate is PSA section 46(1), as follows (so far as relevant): “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 [i.e. 6 April 1997], or (ii) to the weekly rate of the pension mentioned in paragraph (b) … whichever is the less.” (a) to a Category A retirement pension … and (b) to one or more guaranteed minimum pensions (i) to that part of its additional pension which is attributable to earnings factors for any tax years ending before the principal appointed day [i.e.

(b) …

[12]Ms Pearce’s State retirement pension is a Category A retirement pension. Her SERPS entitlement is an additional pension. She is entitled to both a Category A retirement pension and a GMP. It therefore seems to follow from the words of the section that the weekly rate of the Category A retirement pension is to be reduced by an amount equal to the lesser of (i) and (ii). Because the GMP is less than the pre-1997 additional pension, the deductible amount is the GMP. Put very shortly, that is the reasoning of the Appeal Tribunal and of the Deputy Social Security Commissioner in this case. It is consistent with the reasoning of Social Security Commissioners in other cases, in particular that of Commissioner Williams in CP 4479/2000, Commissioner Mesher in CP 1318/2001 and Commissioner Fellner in CP 281/2002.[13]Ms Pearce says that the decision is wrong because it fails to take into account the preservation of benefits legislation, and that the result would subvert the guarantee involved in a GMP, as well as the principles of preservation of benefits and of inalienability of benefits under occupational pension schemes. In her Appellant’s Notice, at section 8, she says this (among other things):
“GMP resides in my Company Pension in place of Additional Pension. It is the minimum pension guaranteed by the government for NI contributions paid into a Company scheme instead of into SERPS. If the deduction is GMP it represents a charge on my Company pension by the only organisation capable of indirect access to my Company pension through a deduction from other non-means tested pension benefits. Unless GMP was revalued after it gained protected status, to honour the guarantee it cannot form any further part of the deduction since that results in a deprivation of preserved pension rights. There is no justification in law for all AP between the years 1978 and 1997 to be treated as notional if a person was only contracted out for the years 1978 to 1984. GMP is the earner’s guarantee. Its meaning cannot be “a minimum pension that the earner guarantees to pay to the Government at state retirement age” – it would never have passed through Parliament and enacted into law. Under section 46(1) the “any period”
I am entitled to AP and GMP is the period April 1978 to November 1984 and the deduction is for that period. For any other period I am entitled only to AP.”[14]This summarises succinctly the points which she had put to the Appeal Tribunal and the Social Security Commissioner. She elaborated on the points further in written submissions dated 23 February 2005 annexed to her Appellant’s Notice.[15]Ms Pearce’s argument about the meaning of “any period”, and correspondingly “that period”, in section 46(1) must be wrong. The period referred to is a period for which the Category A retirement pension is payable, not the earlier period of employment and National Insurance Contributions which gives rise to the entitlement to the Category A retirement pension and to the GMP. That follows from the fact that the sub-section speaks of a weekly rate for the period in question. The period must therefore be a period when the relevant benefit is in payment, not one when the right to the benefit is being accrued. Moreover, no-one is entitled to a Category A retirement pension until he or she has reached the State pension age: see Social Security Contributions and Benefits Act 1992 section 44(1)(a).[16]It appears to be Ms Pearce’s misfortune that, having left the Exxon Mobil scheme in November 1984, her preserved benefits did not qualify for the protection of what is now PSA section 87, nor to other protections for early leavers which were introduced then and thereafter. As a result, she says, the only part of her pension under the company scheme which has been revalued is the GMP. Her pension under the Exxon Mobil scheme appears to be £60.96 per week, the same as it was when she left. The GMP element was £15.56 but has been revalued to £57.40. The deduction of that amount from her State retirement pension has the same effect as if she were deprived of almost all of her benefits under the company scheme, something which cannot be done directly under pension legislation.[17]A GMP only arises in respect of membership of a contracted-out occupational pension scheme. Such membership carries with it a lower rate of National Insurance Contribution, for both the employer and the employee. The point of the GMP is to ensure that the occupational pension scheme benefits do not fall below the basic guaranteed level, which is to be equivalent to the benefits that would have been provided by SERPS but for the contracting-out. Ms Pearce is not right to describe the GMP as a Government pension, distinct from the Company pension. It is not a pension separately payable, but rather an amount below which the pension provided by the occupational pension scheme may not fall. Its payment is certainly not guaranteed by the government or by anyone else. The only respect in which it is protected, relevantly for present purposes, is the indirect method of limiting the contracted-out deduction, under section 46, to the additional pension, if that is less than the GMP.[18]Ms Pearce complains, above all, of two things: first that the GMP should be deductible from SERPS (additional pension) earned in respect of periods of contracted-in employment, as well as of contracted-out employment, and secondly that it should be deductible at its revalued amount, when the rest of her company pension has not been revalued. As to the first point, the terms of section 46(1) are clear and there is no basis in them for distinguishing between periods of earnings according to whether the employment was contracted out or not. I accept Ms Pearce’s point that this could be seen as the government taking away with one hand (through the calculation of the State retirement pension) that which it sought with the other hand to ensure that the earner was given through the occupational pension scheme, by way of the GMP provisions.[19]I note that, in a booklet giving guidance about pensions issued by the Department, which explains the contracted-out deduction under PSA section 46, the text as to the calculation of the deduction is consistent with Ms Pearce’s contention, and not with the law as applied by the Appeal Tribunal and the Deputy Social Security Commissioner in this case. The booklet says this:
“Your contracted-out deduction as a member of a [contracted-out salary-related] ... scheme is worked out from the amount of earnings on which you have paid the relevant NI contributions at the lower contracted-out rate for each tax year in your working life since 6 April 1978 to 5 April 1997 … Your earnings for each year in which you were contracted-out, except the year ending before the one in which you reach pensionable age, is increased in line with the rise in national average earnings. … Your revalued earnings are added to the earnings on which you have paid lower-rate contracted-out contributions in the last complete tax year before the one in which you reach pensionable age. This total is the amount on which your contracted-out deduction depends.”
[20]That supports Ms Pearce’s argument, in that it would only take into account earnings during tax years including contracted-out periods when calculating the contracted-out deduction. In Ms Pearce’s case that would leave out of the calculation her earnings for the tax years from 6 April 1985 onwards until 1997.[21]Going back to section 46(1), however, Ms Pearce’s submission (and, correspondingly, the guidance given in the booklet) could only be correct if the text at paragraph (i) referred only to contracted-out periods, or to tax years including contracted-out periods, not to the whole period of earnings up to 1997. But additional pension arises from earnings in any relevant year, whether or not the earner is contracted-out at the time: see Social Security Contributions and Benefits Act 1992, section 44. As explained, in my judgment correctly, by Commissioner Mesher in decision CP 1318/2001, a pensioner has an entitlement to additional pension which arises from all relevant periods in which his or her earnings have been at a level high enough to qualify. If, however, for all or part of that time he or she has been in contracted-out employment, then he or she also has one or more GMPs, and PSA section 46 comes into play to prevent duplication. Illogical as it may be to deduct GMP from additional pension for the whole period 1978 to 1997, however long or short the period of contracted-out employment has been, and despite its inconsistency with the Department’s booklet, I agree with Commissioner Mesher that there is no basis in section 46 for distinguishing between additional pension attributable to contracted-out periods on the one hand and additional pension attributable to other periods on the other. The section is quite clear and there is no scope for interpreting it as Ms Pearce contends it should be read.[22]As for the other point, a GMP has to be taken, at any given date, at the amount which it represents, including any revaluation, for all purposes. There is no legitimate statutory basis for Ms Pearce’s contention that only the original figure of £15.56 should be deducted, rather than the revalued amount of £57.40.[23]For these reasons, I am satisfied that the Appeal Tribunal and the Deputy Social Security Commissioner were correct in law, and that Ms Pearce’s appeal has no prospect of success. I therefore dismiss the application and refuse her permission to appeal to the Court of Appeal.

Cited in 4 later judgments