Law Report: Reduction should be made to initial pension

Tuesday Law Report; 6 October 1998 Department of Health v Pensions Ombudsman and another Court of Appeal (Lord Justice Nourse, Lord Justice Aldous and Lord Justice May) 27 July 1998

THE REDUCTION under regulation 56(3)(c) of the National Health Service (Superannuation) Regulations 1980 to an occupational pension when the pensioner becomes entitled to a state pension should be made to the initial amount of the occupational pension, and not to the amount of the initial pension plus annual percentage increases made as a result of the Pensions (Increase) Act 1971 as amended.

The Court of Appeal allowed the appeal of the Department of Health against the decision of Mr Justice Robert Walker to dismiss its appeal against the upholding by the Pensions Ombudsman of a complaint of maladministration.

The claimant, Dr John Wallis Moss, had worked as a general practitioner in the National Health Service from 1957 until 1989, when, on his 60th birthday, he had become entitled to an immediate occupational pension under the National Health Service (Superannuation) Regulations 1980, the initial amount of which was pounds 22,743.43. On his 65th birthday, he had become entitled to his state pension.

That had triggered the operation of regulation 56(3)(c) of the regulations, the effect of which was to reduce the annual amount of his occupational pension by pounds 1.70 for each year of contributing service between 5 July 1948 ("the appointed day") and 1 April 1980 (the date on which the regulations came into operation). The total amount of the reduction was pounds 45.90.

As a result of the Pensions (Increase) Act 1971 as subsequently amended, and through the medium of annual Pensions Increase (Review) Orders, Dr Moss's pension had been increased in April of each year between 1990 and 1994 by a compound percentage increase resulting in an annual pension immediately before his 65th birthday of pounds 29,621.55.

Dr Moss contended that the reduction under regulation 56(3)(c) should be made by subtracting pounds 45.90 from pounds 29,621.55 (the initial pension plus the annual percentage increases). The Department of Health contended that pounds 45.90 should be subtracted from the initial pension of pounds 22,743.43, to which the annual percentage increases would then be added.

Dr Moss's complaint of maladministration to the Pensions Ombudsman under section 146 of the Pension Schemes Act 1993 was upheld. The Department's appeal to the High Court was dismissed, the judge holding that section 59(5) of the 1971 Act, which provided that "the increases in the rate of a pension that may be provided for under this section are to be calculated by reference to the basic rate of the said pension . . ." did not provide for recalculation of past figures. The Department appealed.

Christopher Nugee QC and Jonathan Crow (Treasury Solicitor) for the Department of Health; Jonathan Manning (John Yolland) for the respondents.

Lord Justice Nourse said that the increases for which provision might be made under section 59(5) were to be calculated by reference to the "basic rate" of the pension, by which was meant its annual rate apart from any increase under or by reference to the 1971 Act. Clearly, unless and until regulation 56(3)(c) operated, the calculations were to be made by reference to the annual rate of the initial pension.

The answer to the question whether, from and after the operation of regulation 56(3)(c), the calculations were to continue to be made by reference to that rate or to the reduced rate was to be found in section 59(5) of the 1971 Act, as illuminated by the definition of "basic rate" in section 7(1) as "the annual rate of a pension apart from any increase under or by reference to this Act".

Accordingly, on the claimant's 65th birthday, the basic rate of his pension for the purposes of section 59(5) ceased to be pounds 22,743.43 and became pounds 22,697.53, and the increases authorised by that provision were thereafter to be calculated by reference to the latter figure and not the former.

Kate O'Hanlon, Barrister