[2009] UKUT 55 (AAC) (20 March 2009)
Income support and state pension credit
other: state pension credit
THE UPPER TRIBUNAL Appeal No. CPC 571 2008
ADMINISTRATIVE APPEALS CHAMBER
Secretary of State for Work and Pensions v JK
Hearing on 12 03 2009 at Harp House, London.
Ben Lask of counsel, instructed by the Solicitor to the Department for Work and Pensions, for the Appellant
Desmond Rutledge of counsel, instructed by the Public Law Project, for the Respondent
DECISION
The appeal is dismissed.
REASONS FOR DECISION
- The central question in this appeal is whether the appellant's ("Mr K") Irish state pension is to be taken into account in calculating his entitlement to British state pension credit. That question has, unfortunately, become buried behind questions about the validity and effect of a series of decisions by the Secretary of State for Work and Pensions and tribunals and I must deal with those issues first.
The facts
- The parties helpfully agreed a statement of facts. Mr K became 65 on 5 09 2000. He claimed, and was entitled to, a British state retirement pension. As it appeared that he was also entitled to an Irish state pension, the British Pensions Service made a claim for him to the Irish authorities.
- Mr K was at the time receiving British income support. On 6 10 2003 his award of income support was automatically converted to an award of state pension credit. An assessed income period ("AIP") was decided for the award as being from 6 10 2003 to 20 11 2009.
- On 13 01 2004 the Irish pension authorities notified Mr K that he had been awarded an Irish state pension from 7 09 2000. This was a pro rata Irish pension that had been calculated under the European Union rules to take account of contributions by Mr K to both British and Irish state pension schemes.
- On 27 04 2005 a decision maker for the Secretary of State for Work and Pensions, having been notified of the Irish pension award, decided that the decision to determine an AIP for Mr K was wrong. The decision maker revised the award decision. The effect of this was, in the view of the decision maker, that Mr K's Irish pension fell to be taken into account in calculating his British state pension credit. As a result, the amount of pension credit awarded was reduced.
- Mr K appealed that decision. A tribunal heard the appeal on 27 06 2006 ("the first tribunal"). The tribunal decided that the decision of 27 04 2005 was wrong. This was because the Secretary of State knew of Mr K's Irish pension application. Accordingly, there was no ground to revise the original award decision.
- On 11 09 2006 another decision maker for the Secretary of State sidestepped this decision. According to the letter to Mr K, the decision of that date left the AIP unchanged. But it decided that:
"Retirement provision is defined as income from savings and private pensions or annuities. State pensions not awarded under the provisions of the Social Security Contributions and Benefits Act 1992 from this or any other country do not fall under the title of retirement provision and are not subject to AIP rules. This means we are going to continue to deduct your Irish pension from your Pension Credit entitlement."
Mr K appealed.
- A tribunal heard that appeal on 19 03 2007. The tribunal decided that Mr K's Irish pension did not have to be taken into account in calculating his British state pension credit. The Secretary of State asked for permission to appeal. Instead of granting permission, the tribunal chairman took the view that the tribunal decision was wrong in law and set it aside. A third tribunal reheard the appeal on 12 10 2007 ("the third tribunal"). The third tribunal agreed, in effect, with the decision of the second tribunal that the Irish state pension was not relevant to the award of British state pension credit. The Secretary of State appealed against that decision.
The operative decisions
- It is necessary to consider what was decided in this series of decisions. This is because I am faced with two conflicting views of the operative decision that emerges from the series. Mr Rutledge contended that the operative decision is that of the first tribunal. That decision, he submits, was not appealed so is final. That decision prevented the Secretary of State making the purported decision of 11 09 2006. It had already dealt with the issue when determining the appeal before it. The consequence was that there was no valid decision before the tribunal on 12 10 2007, and no valid appeal before me.
- Mr Lask contended that the decision of 11 09 2006 was both the operative decision and the correct decision. All three tribunals had got the law wrong in various ways. There was a valid appeal before me, in the jurisdictional sense, but the appeal should be dismissed.
The decision of 27 04 2005
- One of the problems in this appeal is that no one now has information about the precise terms of the decisions of 6 10 2003 or of 27 04 2005. I assume, as no point was taken on it, that the first of those decisions was a decision made or deemed to be made under the State Pension Credit (Consequential, Transitional and Miscellaneous Provisions) Regulations 2002 (SI 2002 No 3019) regulations 36 – 39. It may have been that the decision made at that time was conditional in a way authorised by those regulations. If so, there is no evidence of that, and I therefore assume that it was not conditional. I also assume that the decision was taken both on and with effect from 6 10 2003, although the date of the decision itself is not clear. If so, then that decision was made at a time when the Secretary of State was aware of Mr K's Irish pension claim, but before the Irish claim had been determined.
- The decision of 27 04 2005 was made after Mr K and the Secretary of State had been informed of the Irish state pension award. The Secretary of State took the view that the Irish state pension was relevant to the calculation of Mr K's British state pension credit. I am asked to consider in this appeal whether that is correct. Based on that view, the decision maker acting for the Secretary of State, relying on that approach to the law, apparently dealt with the original decision by altering the AIP. I say "apparently" because unfortunately the terms of that decision were not available to me or, of greater importance, to the tribunal that heard the appeal against it. All that tribunal could do was look at the description of the decision in the official submission made to it.
- What the first tribunal therefore had in front of it was a submission about a decision on 27 04 2005 revising an earlier decision operative on 6 10 2003. A revised decision can operate only from the date of the decision revised. The tribunal clearly took the view (in my judgment correctly) that at that date (6 10 2003) there was no material fact of which the Secretary of State was not aware about the Irish pension. There were therefore no grounds to revise the original decision.
- The decision of the first tribunal was not appealed and is final. What was the effect on the decision of 27 04 2005? The decision of the tribunal states that the decision under appeal was "revised". This case is another example of the misuse of that term by tribunals as discussed in R(IS) 2/08. The decision under appeal was in laymen's terms cancelled. In technical terms, it was the original decision of 6 10 2003, as revised in 27 04 2005, that was under appeal. The decision of the tribunal was to set aside the decision of 27 04 2005. It therefore restored to full effect the decision of 6 10 2003. Nonetheless, the decision became a tribunal decision, and not merely a decision of the Secretary of State.
The decision of 11 09 2006
- It was the decision of 6 10 2003, as confirmed by the first tribunal, that was considered by the Secretary of State on 11 09 2006. It was accepted for the Secretary of State before me that that decision on 11 09 2006 was a supersession decision and not a revision decision. The procedural issues that arose when that decision was appealed were therefore whether the Secretary of State had shown grounds to supersede not the original decision but the decision of the first tribunal, and if so from when.
The issues in the appeal
- The decision maker acting for the Secretary of State purported to supersede the decision of the first tribunal because of the award of the Irish state pension. This gives rise to two questions: (a) was the Irish state pension relevant to the British state pension credit; and (b) if it was, was the Secretary of State prevented by the decision of the first tribunal from superseding the award of state pension credit on 6 10 2003 to take the Irish pension into account? If the terms of the first tribunal decision are such as to make the decision of 11 09 2006 invalid, then it is arguable there is no decision before me to decide. And the effect would be that the original decision of 6 10 2003 is restored but the Irish pension is left out of account. But a proper consideration of that question demands an examination of the relevance of the Irish state pension to the British state pension credit in this case in order to decide the effective scope of that tribunal decision. I therefore turn to the substantive issue first.
Can an Irish state pension be taken into account in awarding British state pension credit?
- State pension credit is awarded under the State Pension Credit Act 2002 ("the 2002 Act") and the State Pension Credit Regulations 2002 (SI 2002 No 1792) ("SPC Regulations"). There are two forms of credit, the guarantee credit and the saving credit. This appeal is concerned only with the guarantee credit. Entitlement to the guarantee credit depends on the income of the claimant (2002 Act, section 2). "Income" is defined for this purpose by section 15 of the Act and by the SPC Regulations. The approach taken is similar to that taken for income support, which is the benefit replaced by state pension credit for those over pensionable age in similar positions to that of Mr K.
- State pension credit differs from income support in having an "assessed income period" (AIP) for most awards. Income support is awarded day by day. Those receiving income support must notify the Secretary of State of all relevant changes of circumstances, and in particular of income, promptly when they occur. The duty to notify certain kinds of income does not apply during the AIP of a state pension credit award.
- The 2002 Act makes provision for the operation of the AIP in section 7. This provides, as relevant here:
"(2) This section has effect for the purpose of determining, as at any time in the assessed income period –
(a) the claimant's entitlement to state pension credit; or
(b) the amount of state pension credit to which the claimant is entitled.
(3) Where the claimant's income, as determined for the purposes of the relevant decision, include an amount (the "assessed amount") in respect of an element of the claimant's retirement provision, the amount of that element as at any time in the assessed income period shall be taken to be the assessed amount as for the time being varied in accordance with regulations under subsection (4).
(4) The assessed amount shall be deemed, except in prescribed circumstances –
(a) to increase, or
(b) in the case of income from capital, to increase or decrease,
on such date or dates and by such amounts as may be prescribed.
(5) Where it is determined for the purposes of the relevant decision that the claimant's income does not include any, or any further, elements of retirement provision, the claimant's income throughout the assessed income period shall be taken not to include those elements.
(6) For the purposes of this Act "retirement provision" means income of any of the following descriptions –
(a) retirement pension income, other than benefit under the Contributions and Benefits Act …
and an element of a person's retirement provision is income of any of those descriptions from a particular source."
It is common ground that only section 7(6)(a) is relevant in this case.
- In this case the "relevant decision" is the decision made on 6 10 2003, and the assessed income period continues from then to 20 11 2009: 2002 Act, section 6(3) and (5).
- "Income" as defined by section 15 includes "retirement pension income" (section 15(1)(c)), "prescribed social security benefits (other than retirement pension income and state pension credit)" (section 15(1)(e), and "foreign social security benefits of any prescribed description" (section 15(1)(f)).
- Regulation 15(1) of the SPC Regulations prescribes all social security benefits for the purposes of section 15(1)(e) other than a list set out in the regulation. I do not set out the list. I note that it includes no benefit of any kind payable to the retired or elderly because only of their age or any benefit for those receiving benefits as a survivor of someone who has died. Regulation 15(2) prescribes for section 15(1)(f) "all foreign social security benefits which are similar to" those prescribed for section 15(1)(e).
- It is not in dispute that Mr K's Irish state pension is "income" under one or other head of section 15. The question is: which head? Section 15(1)(e) expressly only applies if section 15(1)(c) does not. As defined in the SPC Regulations, section 15(1)(f) only applies to income of similar kinds to those in section 15(1)(e). I interpret that to mean that in any classification of income for these purposes section 15(1)(c) takes priority over both section 15(1)(e) and section 15(1)(f). In other words, if the Irish state pension is part of Mr K's retirement pension income, then it is income for state pension credit because of that provision only. The payment cannot be included under both that sub-paragraph and sub-paragraph (e) or (f).
- That must be read together with section 7(6). If Mr K's Irish pension is "retirement pension income" then it can be regarded as that form of income only. It then follows that it is "retirement provision" as that term is defined in section 7(6). If that is so, then the pension falls within the provisions limiting changes to state pension credit entitlement during the AIP. So if Mr K's Irish pension is "retirement pension income" then he is not under a duty to tell the Secretary of State about it, and the Secretary of State has no power to change the state pension credit because of it.
Retirement pension income
- "Retirement pension income" is defined by section 16. This provides:
16 Retirement pension income
(1) In this Act "retirement pension income" means any of the following—
(a) a Category A or Category B retirement pension payable under sections 43 to 55 of—
(i) the Contributions and Benefits Act; or
(ii) the Social Security Contributions and Benefits (Northern Ireland) Act;
(b) a shared additional pension payable under section 55A of either of those Acts (utilisation of State scheme pension credits on divorce);
(c) graduated retirement benefit payable under section 62 of either of those Acts;
(d) a Category C or Category D retirement pension payable under section 78 of either of those Acts;
(e) age addition payable under section 79 of either of those Acts;
(f) income from an occupational pension scheme or a personal pension scheme;
(g) income from an overseas arrangement;
(h) income from a retirement annuity contract;
(i) income from annuities or insurance policies purchased or transferred for the purpose of giving effect to rights under a personal pension scheme or an overseas arrangement;
(j) income from annuities purchased or entered into for the purpose of discharging liability under—
(i) section 29(1)(b) of the Welfare Reform and Pensions Act (pension credits on divorce); or
(ii) Article 26(1)(b) of the Welfare Reform and Pensions (Northern Ireland) Order 1999 (S.I. 1999/3147 (N.I. 11)) (corresponding provision for Northern Ireland).
(2) The Secretary of State may by regulations amend subsection (1); and any such regulations may—
(a) add to or vary the descriptions of income for the time being listed in that subsection; or
(b) remove any such description from that subsection.
(3) In this section—
"overseas arrangement" has the meaning given by section 181(1) of the Pension Schemes Act;
"retirement annuity contract" means a contract or scheme approved under Chapter 3 of Part 14 of the Income and Corporation Taxes Act.
- The only part of that definition that can apply to Mr K's Irish state pension is section 16(1)(g) – "income from an overseas arrangement". This is defined as having the meaning given to that phrase in section 181 of the Pension Schemes Act 1993.
- There was no definition of that term in section 181 as enacted. It was added to the section (the general interpretation section of the 1993 Act) by Schedule 5, paragraph 2 to the Child Support, Pensions and Social Security Act 2000, under the heading of "transfer of rights to overseas personal pension schemes".
- The added definition is:
"overseas arrangement" means a scheme or arrangement which –
(a) has effect, or is capable of having effect, so as to provide benefits on termination of employment or on death or retirement to or in respect of earners;
(b) is administered wholly or primarily outside Great Britain;
(c) is not an appropriate scheme; and
(d) is not an occupational pension scheme."
An "appropriate scheme" is one of a class of personal pension schemes. It is common ground that the Irish state pension is neither an appropriate scheme nor an occupational pension scheme. It is common ground, and obvious, that the Irish state pension is administered outside Great Britain.
- The decisive test is therefore whether the Irish state pension is:
(a) a scheme or arrangement, and
(b) it either has effect or is capable of having effect to provide benefits when one of the stated "triggers" occurs: termination of employment; death; retirement.
Scheme or arrangement
- The parties did not agree about the approach I should take to interpreting those tests. Mr Rutledge argued that I should interpret the test primarily in the context of the 2002 Act, while Mr Lask relied both on the context of the 1993 Act and that of the amendment in the 2000 Act. He also took me to explanatory notes about the amendment in 2000.
- I agree with the primary approach of Mr Lask to interpreting the definition. This is because of the wording placed in the 2002 Act: Parliament has not merely borrowed the wording form the 1993 Act. It has stated that the definition is to have "the meaning given by" the 1993 Act as amended. If the drafter wanted to use the definition of the phrase purely for its wording alone, he or she could have copied it into the 2002 Act without mentioning its sources.
- I do not agree with the approach that Mr Lask suggests follows from that. He relied on that Act to submit that "scheme or arrangement" could mean only private arrangements, not provisions laid down in legislation or social security benefits. In particular, he submitted, the use of the terms "scheme" and "arrangement" indicated that only private, as against public, pensions were within the provision. In my view, his argument leads to the opposite conclusion. First, it is clear from section 1 that a pension "scheme" can include a pension provided by primary legislation – see the definition of "public service pension scheme" in that section. Further, later provisions of the 1993 Act use the phrase "state scheme" to refer to the British state retirement pension in several places. See for example the heading to, and repeated references in, Part II of that Act to the "state scheme". It is clear that in the context of the 1993 Act a state pension can be a "scheme or arrangement" and that therefore a foreign state pension can be an "overseas arrangement". (It is also within my knowledge that the Irish Department of Social and Family Affairs refers to the Irish state pension as a pension "scheme").
- Mr Lask sought to buttress his view that "overseas arrangement" could not apply to state pensions by the order of the items listed in section 16(1). He noted that items (a) to (e) listed various kinds of British state pension, and that (f) and the items from (h) all related to occupational or private pensions or other kinds of pension provision. He deduced from this that paragraph (1)(g) was, because of its ranking order in the provision, intended to be about private pensions only. I find that of little weight. I also find the explanatory account for the amendment to section 181 in the 2000 Act of little help.
- As I observed at the hearing, it is impossible to generalise about whether foreign "state" pensions are "public" or "occupational" by reference only to an analogy to the British legislation. For example, as again I pointed out at the hearing, there is no "state pension" in Australia of a kind similar to that in the United Kingdom. But all employees are compelled by primary legislation to be in a "super" scheme, and in that way Australia provides that all retired employees have a pension. (Again, I have to confess personal knowledge as someone with a small "super" claim.) Different arrangements, again given the force of national law, apply in Germany in a way that straddles the public and private divide. Nordic states have different arrangements again, again straddling the public/private divide. And so the list could go on. Indeed, it would not be out of place to observe that the British form of state retirement pension is in policy terms at one extreme of the variants used by national authorities to ensure their citizens have pensions.
- It would therefore be wrong, in interpreting wording that is clearly used to provide an interface between United Kingdom pension schemes and those of any other country, to try and interpret the language by looking only at the British scheme or at a scheme such as the Irish scheme that has a number of close historic similarities to the British state scheme. The section 181 definition is intended to apply to all other countries, and it must be interpreted accordingly. The location of the phrase in section 16 seems to me arguably to be the most appropriate location with that in mind – following the list of all the main kinds of British pension, and before the relatively minor or special kinds of pension in Britain. That view also confirms the appropriateness of referring to state pension schemes as "schemes or arrangements".
"has effect or is capable of having effect"
- If that is so, then the inclusion or exclusion of the Irish state pension depends on whether the scheme under which it is payable:
"has effect, or is capable of having effect so as to provide benefits on termination of employment oron death or retirement"
- What the Irish state scheme provides, and is capable of providing, is of course determined by that scheme. Whether that is a matter of Irish law, or of fact, in Ireland, it is a matter of fact before a British court or tribunal.
- That creates a series of difficulties in this case. The first is that there can be no appeal from the decision of a tribunal on a matter of fact. The second is that the issue must be decided by the tribunal on the available evidence and with regard to the burden of proof. In this case the Secretary of State is seeking to supersede an earlier decision, so the burden of proof is on him.
- The language of the definition creates a further difficulty because it imposes alternative tests. The first is whether the scheme has any of the effects stated. The other is whether it is capable of having those effects. If that second test is applied to Mr K's Irish pension in the light of the considerations set out above, it asks the following as a question of fact: is the Irish state pension scheme capable of providing Mr K a benefit on his retirement or the termination of his employment or (presumably for his widow) on his death?
What triggered the pension?
- Mr Lask's answer was to assert that the Irish state pension scheme is age-related not retirement-related. As he put it, the Irish pension was triggered by Mr K's age and not by his retirement. It was not within the definition in section 181. That definition deliberately excluded a reference to age-related entitlement. He supported his argument about the scope of section 181 by reference to section 1 of the Pension Schemes Act 1993. The section uses the term "pension scheme" and defines it in subsection (5) as meaning:
"a scheme or other arrangements … having or capable of having effectso as to provide benefits to or in respect of people –
(a) on retirement,
(b) on having reached a particular age, or
(c) on termination of service in an employment."
As he pointed out, the phraselogy of that definition is similar to that in the inserted section 181 save that test (b) has clearly been omitted. I see some weight in this argument. But it does not get round the point that these are alternatives in both section 1 and section 181. And in both sections there is a second set of alternatives: that the schemes either have effect, or are capable of having effect, against the alternatives.
- There is a second problem with Mr Lask's argument. It might carry some weight if supported by evidence that the Irish state pension was paid and payable only against the occasion of someone reaching a particular age. There is no such evidence in this case. There is no evidence in the papers, and I was offered none, that the Irish state pension scheme is exclusively an age-related pension scheme. Further, as noted below, it was accepted for the Secretary of State before the tribunal that Mr K's pension was payable on his retirement.
Policy considerations
- I find it difficult to derive the answer for which Mr Lask contended in this case, even on his view of the facts, from more general considerations of policy or fairness. The pension received by Mr K from Ireland was a pro rata pension. I assume Mr K also received a British pro rata pension, although I was not given details. From one standpoint, it would clearly seem fair to work on the assumption that the two pensions were equally relevant to determining how much Mr K received by way of additional British pension in the guise of state pension.
- If the question was whether it was fair to include Mr K's Irish pension alongside his British pension, then there is clearly much to be said for the approach. But that is not the question here, as Mr Rutledge emphasised. The question is not whether ignoring the Irish pension is fair as a general approach, but whether the particular mechanism adopted for British state pension credit - the AIP - is to apply to Mr K's Irish pension. To deal with that, I must interpret "retirement pension income" in its context in section 7(6) as well as its context in section 15. From the standpoint of fairness, the view can be taken that the scope of the meaning as applied in section 7 is more important than as applied in section 15 because there are alternatives to catch borderline cases in section 15 but not in section 7.
- Mr K's claim was being investigated by the Irish authorities, at the latest, on 22 10 2002 and the Secretary of State was aware of this. That was the conclusion of the first tribunal and cannot be disputed. The Secretary of State must be assumed to have made a decision about the AIP for Mr K in full knowledge of that application.
- The Secretary of State could have exercised his discretion under section 6, read with section 9, of the Act not to determine an AIP when awarding Mr K his state pension credit. Alternatively, he could have determined a short AIP. As the second and third tribunals both observed, he chose not to change the AIP. It must be concluded that the Secretary of State decided not to wait for the Irish pension claim to be determined and was content to impose an AIP on Mr K while fully aware of that. That being so, the logic of the decision is that the Secretary of State has chosen to wait to the end of the AIP before he takes account of the Irish pension. Put on that basis, more general issues of fairness do not arise here. There were other ways in which the Secretary of State could have dealt with any unfairness that he considered might arise from the award of the Irish pension, and it was decided not to use those other ways.
- Even if that is wrong, there remains a more general policy issue when looking at the scope of the definition of "overseas arrangements". They would seem, even on Mr Lask's arguments, to include some overseas state schemes and not others. In that context, there is little merit in looking at the policy with regard to the Irish pension when a similar look at some other national schemes would not be open to Mr Lask's arguments. That would merely shift the unfairness, not solve it.
Determining the question of "retirement pension income"
- My conclusion is that the question whether the inclusion of the Irish state pension as part of Mr K's "retirement pension income" and therefore of his "retirement provision" for the purposes of section 7 of the 2002 Act is a matter of fact. In this case that factual question fell to be decided on the evidence before the tribunal on 12 10 2007, with the burden of proof on the Secretary of State as the decision under appeal was a supersession decision.
- In practical terms, that is perhaps unfortunate. At a more general level, it means that this important borderline issue is left to be determined on evidence of fact in each case. But that is the consequence of the decision of the drafter, adopted by Parliament, of writing into the 2002 Act a definition taken from, and to be interpreted in, a different context. The practical answer is that in such cases the Secretary of State should exercise the discretion not to set an AIP, or to limit it, when making the initial award. He did not do so.
- It also adds the complication here that the power of the Secretary of State to supersede the original decision in 2006, and whether Mr Rutledge was right to submit that there was no power at that time, depend on evidence about the Irish scheme as it applied to Mr K. But the record of proceedings of the third tribunal, read with the papers before that tribunal, deal adequately with the issue on the facts. I can therefore reach a conclusion in Mr K's favour without having to go back to Mr Rutledge's careful analysis of other problems in the series of decisions. As I, in effect, reinstate the decision of 6 10 2003, for the above reasons, I intend no disrespect to him in not taking further his alternative analysis of the limits on the decision of 11 09 2006 to reach the same outcome.
My conclusion
- What did the third tribunal know of Irish state pensions, or of Mr K's Irish state pension? From the limited documentation in the papers, the tribunal could deduce that the Irish Pension Services Office accepted that Mr K had claimed a retirement pension and that it knew he had retired. And it knew that Mr K was receiving a pension "from the Irish Retirement Pension scheme" because that is what the Secretary of State decided, and Mr K did not dispute that. According to the record of proceedings , there is another critical piece of information received by the tribunal from the Secretary of State's representative at the hearing: "I agree payable on his retirement". That answers the factual question before it, and fully justifies its finding that Mr K's Irish pension "is payable in respect of retirement". On that basis, there is no substance to Mr Lask's argument about the nature of Mr K's Irish pension. It was clearly, on the facts, part of his retirement provision, and section 7applied to exclude it from assessment during the AIP.
- The decision under appeal is that:
"Mr K's entitlement to State Pension Credit is not subject to deduction of his Irish Retirement Pension during the Assessed Income Period."
On the evidence before the tribunal, and in the light of the discussion above, that was clearly correct in law.
David Williams
Judge of the Upper Tribunal
20 03 2009
[Signed on the original on the date stated]
