[2025] UKUT 353 (AAC)

It is convenient to begin with the tribunal’s reliance on KH v Secretary of State for Work and Pensions [2014] UKUT 138 (AAC). That was a case in which the claimant, who attained state pension age in December 2006, deferred his retirement for 50 weeks and thereby became entitled, under Schedule 5 of the Social Security Contributions and Benefits Act, to an increment of 10% of the total of his basic Category A pension, graduated retirement benefit and additional pension. His total pension was calculated accordingly. The effect of subsequent annual up-rating orders was that the element representing the increment ceased to be 10% of the total pension. The claimant contended that he was entitled to a pension calculated on the footing that the increment element should always be 10% of the aggregate of the other elements of his pension. As Judge Wikeley pointed out, that would require an annual recalculation rather than the once-and-for-all calculation provided for by the legislation, which, in the absence of revision, supersession or appeal, is final. Up-rating is governed by ss.150 and 150A of the Social Security Administration Act 1992, which provides for separate up-rating of the individual elements of the pension, including the increment element. The claimant’s approach was “completely inconsistent with the statutory mechanism”.

I accept the submissions of both the appellant and the Secretary of State that KH is not relevant to the present case, essentially for the reasons clearly and convincingly explained in the appellant’s submission. The appellant’s challenge is to the methodology used when the DWP made a new once-and-for-all determination of his pension entitlement following his second retirement, not to the making of such a determination in principle. Since KH did not involve de-retirement and a second retirement, it does not assist on the point at issue here.

I also accept the appellant’s further submission that the only reasoning for the tribunal’s rejection of his arguments is that based on KH, as set out in paragraph 9 of the decision. As I understand it, the similarity that the tribunal had in mind was that there was a once-and-for-all decision in both KH and the appellant’s own case. It follows, as the Secretary of State recognises, that the tribunal erred in law in relying on KH as its ground for dismissing the appellant’s appeal. Although the Secretary of State submits otherwise, in my view the error was material, since it was central to the tribunal’s reasoning. The appropriate course is therefore to set aside the decision.

The appellant, however, invites me, if I take that course, to re-make the decision, a course which is open to me under s.12(2)(b) of the Tribunals, Courts and Enforcement Act 2007. The Secretary of State does not make such a submission in terms, but does submit that it is clear from the legislation that the tribunal reached the correct conclusion, although for the wrong reasons. That is a submission which is well suited to consideration in the course of re-making the decision. There are no outstanding issues of fact and I see nothing to be gained by remitting the matter to the First-tier Tribunal. I therefore proceed to re-make the decision.

As appears from paragraph 19 above, the right to an increment if the pensioner does not retire at the state pensionable age has been established since the National Insurance Act 1946. As appears from paragraph 22 above, the general right to de-retire with the statutory consequence that the pensioner is treated as if he had never become entitled to his pension has been established since the National Insurance Act 1957. A situation such as the situation in which the appellant finds himself has been possible since then, although the practical consequences may have been limited by the fact that retirement for the statutory purposes could only be deferred for five years.

It follows that in all probability the DWP has had, since 1957, a methodology, developed by reference to the statutory provisions in force from time to time, for making the necessary calculation. In my view, as I have already explained, when the right to de-retire was introduced the applicable provisions required increments to be calculated afresh from the date on which the person in question attained pensionable age, by reference to the national insurance contributions paid during the period from that date until his second retirement. I assume that the DWP’s methodology proceeded accordingly, both because that is what the legislation required and because that is what the DWP’s current, disputed, methodology does, although against a background of much more complex legislation. As set out above, the material statutory provisions since 1965 have consistently required that in relation to a person who exercises the right to de-retire the relevant provisions should have effect as if that person had not retired or become entitled to the pension. This consistency appears in relation to graduated retirement benefit as well as Category A retirement pension and it seems to me inconceivable that the two types of pension were intended to be treated differently. Given this consistent terminology, it would be surprising if the current legislation were to be construed as requiring a different methodology.

It is nevertheless necessary to consider the appellant’s arguments carefully to ascertain whether he is correct in contending for his preferred two-phase methodology.

In doing so, I begin with s.54 of the Social Security Contributions and Benefits Act, which contains the enabling mechanism under which the 1979 Regulations are to be treated as having been made. It permits the making of regulations under which an election to de-retire may be made by a person who “has become entitled to a Category A or Category B retirement pension” and specifies that the consequence of an election will be that Part II of the Act “shall have effect as if that person had not become entitled to such a retirement pension”. This phrase is then effectively repeated in the 1979 Regulations. As the appellant points out, the Regulations in fact refer to “this Act” having effect as if the person in question had not become entitled to the pension rather than “this Part of this Act”, but in my view that does not affect the construction of the words “as if that person had not become entitled” to the pension. The natural meaning of those words is, as I have already said, that the Act applies as if the person had never become entitled to the pension. The words “had not become entitled” look back to the time when the person became entitled to a pension and provide that the whole of the relevant legislation shall apply as if that had not happened.

The appellant draws attention to the decision of the Supreme Court in Vermilion Holdings Limited v. Revenue and Customs Commissioners [2023] UKSC 37, [2023] 1 W.L.R. 3908, in which Lord Hodge, with whom the remaining members of the Supreme Court agreed, accepted as a correct statement of the law the guidance given by Lord Briggs on the interpretation and application of deeming provisions in Fowler v. Commissioners for Her Majesty’s Revenue and Customs [2020] UKSC 22. That statement is:

“(1)

The extent of the fiction created by a deeming provision is primarily a matter of construction of the statute in which it appears.

(2)

For that purpose the court should ascertain, if it can, the purposes for which and the persons between whom the statutory fiction is to be resorted to, and then apply the deeming provision that far, but not where it would produce effects clearly outside those purposes.

(3)

But those purposes may be difficult to ascertain, and Parliament may not find it easy to prescribe with precision the intended limits of the artificial assumption which the deeming provision requires to be made.

(4)

A deeming provision should not be applied so far as to produce unjust, absurd or anomalous results, unless the court is compelled to do so by clear language.

(5)

But the court should not shrink from applying the fiction created by the deeming provision to the consequences which would inevitably flow from the fiction being real …”

The appellant contends that the purpose of s.54(1) is to encourage and facilitate de-retirement and that the DWP’s methodology gives rise to unjust, absurd or anomalous results, although he recognises that some of the results which he identifies may be more theoretical than real.

The purpose of s.54(1) in a broad sense is clearly to make de-retirement possible and to that extent it must follow that the purpose of the section as a whole is to facilitate de-retirement. It does so against the background of the general rule in s.43 that a person is not entitled for the same period to more than one retirement pension and the provisions of ss.44 and 45 to the effect that a person is entitled, subject to the provisions of the Act, to a category A pension including additional pension from the day on which he attains pensionable age for the rest of his life. Entitlement is, however, dependent on the person having made a claim to retirement pension, as provided by s.1 of the Social Security Administration Act. The fiction created by s.54(1) therefore has the effect that the person is able to make a fresh claim to a retirement pension taking effect from the day of that claim without continuing entitlement to the original pension presenting an obstacle under ss.43 and 44. The 1979 Regulations repeat the fiction, but reg.3(a) states expressly that no pension shall be payable from the date of the election to de-retire. In my view that provision implies that the original pension was properly paid up to that date and the fiction is not to be applied to the extent of making past payments theoretically recoverable. To the extent required, if any, this is to be taken as a modification such as is envisaged by s.54(2). The potentially unjust, absurd or anomalous results which might otherwise follow in this respect are therefore avoided. Incidentally, reg.3(a) also makes clear that the person does not have a crystallised right to the amount of the original pension as calculated immediately before de-retirement which lasts for his lifetime. The view that he does have such a right underlies much of what the appellant says.

The question then arises how the new Category A pension on the second retirement is to be calculated. The starting point is with the fiction that, as between the claimant and the DWP, the claim is a new claim and the pension will be calculated accordingly, subject again to any modifications made by regulations under s.54(2). The answer is to be found in the deferment provisions of s.55 and Schedule 5. This follows from s.55(3)(b), which provides that entitlement to a pension is deferred for as long as a person is treated as not having become entitled to the pension in consequence of an election to de-retire under s.54(1). Since such an election can only be made by a person who has become entitled to a pension (i.e., a person who falls within s.44), if the claimant is treated as not having become so entitled it must be the fictional absence of a claim which disentitles him to the pension. It necessarily follows that the period of deferment is the period from the date when the claimant would have become entitled to a pension if he had claimed it (i.e., the date on which he attained pensionable age) up to the date of the new claim.

The effect of this approach is that, taking as an example a person who makes the relevant claim to a pension on his 72^nd birthday, the period of deferment will be of the same length whether the deferment is because no previous claim has been made or because the person has previously elected to de-retire and the provisions of Schedule 5 apply equally in both cases. When the calculation is made, the pension entitlement before increments will be the same in both cases. The ultimate outcome will be different only because a different number of incremental periods will be taken into account, reflecting the fact that where there has been a de-retirement, the person will have received a retirement pension during part of the period of de-retirement. Except in so far as the number of incremental periods is affected, it is irrelevant whether the original pension in such a case was received from pensionable age or after an earlier period of deferment.

In principle, this is an approach which seems entirely fair and reasonable and which promotes the policy of encouraging persons who have attained state pension age to remain in, or to return to, employment. The appellant contends, however, that in practice it leads to unjust, absurd or anomalous results. I have already explained in paragraph 62 why in my view this construction does not require a person to repay the retirement pension actually received before de-retiring. The point made there applies equally whether or not the person originally retired on attaining pensionable age or after an initial period of deferment. For similar reasons, repayment of a lump sum would not be required. In this connection it is to be noted that a lump sum is calculated under paras. 3A and 3B of Schedule 5 by reference to the number of payments of retirement pension (without increments) which were not received during the period of deferment, together with interest: that is to say, it is effectively a payment of arrears of pension payments plus interest. It is not an actuarially determined capitalisation of the value at the date of pension entitlement of the increments to which the person would otherwise be entitled in the future.

This point, based so far as necessary on reg. 3 of the 1979 Regulations, is also consistent with reg. 4 of those regulations, which explains what days are to be treated as days of increment. A day is only a day of increment if the person would have been entitled to a retirement pension if he had not deferred the entitlement (which is to be treated as the case of the appellant on the construction of the fiction created by the deeming provision as I have construed it) and the person did not in fact receive one of a number of state benefits, including retirement pension. It is implicit in reg. 4 that a person might have received retirement pension in fact during the period of deferment, although the effect of applying the fiction is that the person is deemed to have deferred entitlement during the period for which it was received.

The appellant accepts that if a person de-retires without having previously deferred his pension, there is a period of deferment for the purposes of s.55(3) but, as I understand his submissions, treats the period as being the period from the date of de-retirement to the date of the new claim. He says that that is the period covered by s.55(3)(b). In my view, that is a wrong construction of s.55(3)(b), which imports the s.54 fiction that the person had not become entitled to the pension. It is not to be read as providing that the person was entitled to the pension but ceased to be so entitled, which is the effect of the appellant’s construction. In any case of de-retirement, therefore, there will be “a curious period” in which the person was in fact in receipt of a retirement pension but is treated as not having become entitled to that pension. If there is no earlier deferment, the curious period will be at the beginning of the period of deferment rather than in the middle. To the extent that the appellant contrasts the position of a person de-retiring after a period of deferment with the position of a person de-retiring having retired at pensionable age, he is mistaken in doing so.

The appellant also relies on para. A1 of Schedule 5, which contains the right to receive a lump sum rather than increased pension payments “if the period of deferment is at least 12 months”. He says that on the basis of the DWP’s construction of “period of deferment” it would be possible in a case such as his to add together periods of deferment of less than 12 months on either side of a period of entitlement and thereby satisfy the 12 months criterion, which he further says was clearly not intended by the legislation. I agree that “period of deferment” must have the same meaning in para. A1 as it has in s.55, but thereafter I part company with the appellant. On the DWP construction, when the new claim to pension is made, there is a single period of deferment which is the whole period from pensionable age to the new claim. The question of adding together periods of deferment separated by a period of receipt of pension does not arise because of the effect of the s.54 fiction. It follows that there is nothing to suggest that the result was not intended by the legislation. The appellant refers to the DWP’s own published guidance but does not identify the passage he has in mind. If he has in mind guidance which refers to deferring the claim “for at least 12 months in a row”, the effect of ss.54 and 55 is that the person in question is treated as having deferred the claim for what would be 12 months in a row in the case he envisages. If he has in mind the explanatory note to which he referred in his submission of 8^th July 2024, the reference to there being in effect two possible opportunities to earn increments does not lead to the conclusion that s.54 should not be construed in accordance with the language used. Even on the DWP’s construction, the appellant has earned increments over two different periods. The question is how the pension resulting from the election to de-retire is to be calculated.

As I read the appellant’s submissions, his understanding is that the DWP methodology is inherently adverse to the person claiming the pension. It is not immediately obvious to me that that is correct, because the outcome in an individual case presumably depends on the combination of increases in the basic pension, annual uprating Orders and incremental periods. The appellant points out that on his original retirement he was offered a lump sum of £38,915 and an ongoing pension of £191 and on his second retirement he was offered a lump sum of £54,815 and an ongoing weekly pension of £212, meaning that the marginal increase in the lump sum payment was £15,900, together with a substantially reduced weekly pension compared with the pension he was receiving before his de-retirement. Further, the marginal increase was slightly less than his pension sacrifice, which amounted to £15,953. He says it would therefore have made no commercial sense to choose the lump sum offer. This seems to me to disregard the facts that:

The appellant recognises that the logic of his position is that he ought not to have been offered a lump sum of £54,815 but asks what would have been the position as respects the increment component of his pension during his first retirement if he had taken the lump sum. This point is not addressed in the Secretary of State’s submission, but my understanding as at present advised is that the lump sum represents arrears of pension exclusive of increments for the period from the appellant’s attaining pensionable age to his first retirement and for the period from his de-retirement to his second retirement together with interest. There were no arrears while the appellant was receiving his pension, which was properly calculated on the facts as they then existed, since he had not then received a lump sum. There is no obligation on the appellant to make any repayment of the increments and I am not aware of any provision under which the increments are treated as paid on account of the lump sum. For that part of the period of deferment which constitutes the period between first retirement and de-retirement the appellant, when the new calculation is made, is entitled neither to increments nor to arrears, because he was in receipt of pension, and no adjustment is required. If, however, the appellant had exercised the lump sum option on the occasion of his first retirement, there would have been no arrears for the period from pensionable age to first retirement and the lump sum on the occasion of his second retirement would have been calculated accordingly.

In this connection the appellant draws attention to the provisions of para. A1(3) of Schedule 5, which makes provision for the case where a person has made, or is treated as having made, an election and then changes his mind. Para. A1(3)(b) specifically provides that any regulations made under the paragraph by virtue of which a person who has already received increases in pension may elect to receive a lump sum instead may also provide that the increases may be recovered from that person or treated as paid on account of the lump sum. The relevant regulations are the Social Security (Deferral of Retirement Pensions, Shared Additional Pension and Graduated Retirement Benefit) (Miscellaneous Provisions) Regulations 2005, S.I. 2005 No. 2677. Those regulations provide by reg. 5 that any such change must be made no later than three months from the date of the notice from the Secretary of State confirming the original election, subject to a discretion in the Secretary of State to extend the period if he considers it reasonable in any case. Reg. 5 goes on to provide that the election may not be changed from an election for a lump sum to an election for increased pension unless the lump sum is repaid within the three month period or from an election for increased pension to a lump sum if the person has already received by way of increases more than the lump sum. If the person has not received by way of increases more than the lump sum, the increases are treated as paid on account of the lump sum. The intention is clearly that a person should have only a fairly short window in which to change his mind and that in effect the accounts should be corrected. It does not seem to me that these provisions shed light on the proper approach to the very different situation which arises as a result of de-retirement.

In his submission to the Upper Tribunal the appellant presents an imaginary scenario to demonstrate how he contends the legislation should be interpreted and applied. The scenario assumes that he had retired on attaining pensionable age and there was therefore no initial deferment of his pension but he then de-retired and retired again as he did in fact. As I understand it, the object of making the assumption is to demonstrate that s.55(3)(a) had no application and the period of deferment arose solely under s.55(3)(b). (Slightly confusingly, the appellant then proceeds to use his actual pension figures, although those figures include the increments resulting from the original deferment.) He rightly says that the first step is to identify the period of deferment and argues that the period under s.55(3)(b) is the period “so long as” he had “cancelled, or given up or suspended” his pension as allowed by the relevant regulations. He says that “that period of cancellation” began on 28^th May 2021 and ended on 19^th June 2022 and consisted of 55 incremental periods. He then further says that the increments for that period of deferment must be calculated by reference to the pension he would have been receiving at the end of that period because of the requirement to give effect to up-rating Orders. This method, he says, should be uncontroversial and a similar method should be applied on the actual facts, which include the initial period of deferment. That is to say, the only relevant period of deferment is the period which followed his de-retirement.

In my view that is not correct, as I have explained. The allegedly uncontroversial method assuming no initial period of deferment is controversial as respects the figures, because the increments are included, but more fundamentally is controversial because of the construction given to the words “in consequence of an election under section 54(1), falls to be treated as not having become entitled to that pension”. As already discussed, the effect of s.54 is that Part II of the Act shall have effect as if a person who has become entitled to a Category A retirement pension had not become entitled to such a pension, subject to any modifications made by regulations. In this context, “had not” is equivalent to “had never” and s.55(3)(b) must be construed accordingly. The appellant’s construction requires it to be read as if, instead of applying a deeming provision, ss.54 and 55 provided that a person who de-retires ceases to be entitled to the relevant pension or (given the continuing weight the appellant gives to the level of pension achieved at the date of de-retirement) that a person who de-retires suspends the entitlement. Neither of those constructions is what the Act says. Whether or not there has been an earlier period of deferment the period of deferment resulting from an election under s.54 runs from the date on which the person attained pensionable age as if he had never claimed his pension.

The appellant’s submissions as to unfairness in the light of a comparison between the imaginary scenario and the actual facts are misplaced, given the inclusion in that scenario of the increments the appellant actually received. In the imaginary scenario, the DWP construction would have led to identifying the same basic pension but a much lower level of increments because there would have been no incremental periods between state pension age and de-retirement.

The submission to the Upper Tribunal goes on to address the possibility that the appellant might have chosen to take the lump sum on the occasion of his first retirement, which I have already considered, and then raises an argument that the removal under the DWP methodology of increments previously awarded constituted the retrospective removal of a vested right and was inconsistent with KH, which refers to the calculation made at the time of the claim as being final, the end of the matter, and the increments as staying added for life. Those expressions were used, however, in the context of statements that the entitlement to pension was decided and the rate calculated once only, at the time when the original claim was made. KH does not assist the appellant in a situation where the original claim is treated as not having been made and a new calculation has to be made following a new claim. Judge Wikeley was clearly not dealing with de-retirement and the case cannot be relied on as an authority, or even guidance, as to the correct construction of ss.54 and 55.

The appellant suggests that the natural and ordinary meaning of the verb “to defer” as used in s.55(3) is “to delay something until a later date; to postpone” or “to suspend”. Delaying or postponing on the one hand and suspending on the other are two different concepts when applied to entitlement to a pension. Delaying or postponing entitlement to a benefit means that the entitlement has not yet arisen, whether or not that consequence results from applying a statutory fiction. Suspending entitlement to a benefit means that entitlement has arisen in the past and is inconsistent with words such as “treated as not having become entitled to that pension”. The appellant treats the two concepts as equivalent and then applies the concept of suspension alone in support of his construction. Given the inconsistency with the statutory wording, I cannot accept that approach. The position under the Pensions Act 2014 is different, in that s.17(7) expressly provides that an exercise of the right to suspend constitutes deferral for the period of suspension for the purposes of that section.

Finally, the appellant relies on the explanation of deferral of retirement pensions given in the DWP’s explanatory notes to s.297 of the Pensions Act 2004, but I do not read those notes as stating that the effect of de-retirement is to suspend entitlement with the consequences he suggests. Rather, the notes refer to an election “to cancel” entitlement. It is common in a variety of contexts for a right to cancel a contract to have the effect of avoiding the contract, so that it is treated as never having been effective, and the use of the word “cancel” in the explanatory notes can readily be understood in that way as an explanation of the statutory provisions. There is nothing in what is said in the notes to imply that “cancel” is to be understood as “terminate for the future”, still less that it is to be understood as “suspend”. I add that on any view the explanatory notes are not a fully comprehensive explanation of the deferment provisions but are a summary for comparison with the new provisions which are described and in my view no inference is to be drawn from the absence of a comprehensive explanation.

Accordingly, having considered the various contentions advanced by the appellant, I remain of the view that the provisions of ss.54 and 55 of and Schedule 5 to the 1992 Act and of regs. 2 to 4 of the 1979 Regulations, when properly construed, do not lead to the conclusions for which the appellant argued in his submission dated 2^nd September 2024 and has continued to argue in his submission to the Upper Tribunal. I accept that the legislation could have taken the approach for which he contends and that that might also have been a reasonable approach, but it was not the one for which I conclude the legislation provides and which has been consistently adopted for over 60 years. I accept further that the provisions of the Pensions Act 2014 relating to postponement and suspension of the new state pension appear to adopt the approach for which the appellant contends, although I do not make a decision on the point. The new state pension differs in various ways from a Category A retirement pension, including the fact that the rate of increment is the lower rate of 1/9^th of a percent rather than 1/5^th and the fact that there is no entitlement to a lump sum, and it is not necessarily to be assumed that the de-retirement provisions operate in the same way. Indeed, s.16 gives a right expressed to be a right to suspend entitlement rather than a right to de-retire with the accompanying fiction that the person in question had not become entitled to the pension. This difference in the statutory wording appears to me to be one of concept rather than clarity. In any event, in my view the 2014 Act cannot be used as an aid to the construction of provisions which have in substance been in their current form for over 60 years and through various consolidations.

For the avoidance of doubt, the approach to the construction of the relevant provisions which I have adopted is in my view consistent with the modern approach to statutory interpretation to which the appellant refers in his submissions.

The reasoning set out above applies equally to the comparable provisions relating to graduated retirement benefit. Those provisions have not been the focus of extended submissions, no doubt because, as I have already noted, the relevant sums are very small, but I see no basis for taking a different approach.