Stokes & Anor v Oxfordshire County Council

These appeals from determinations by the Pensions Ombudsman raise a short question of construction. Both appeals relate to the interpretation of clause G1(3) of the relevant consolidated version of the Firemen's Pension Scheme Order 1992 (SI 1992/129) ("the Order"), which provides:

The question is whether, when calculating a person's "pensionable pay for the year ending with the relevant date", that pay includes arrears of pay which are for work done in earlier years but which are paid in the year ending with the relevant date ("the relevant year").

The Appellants' case is that such arrears should be included in pensionable pay for the year in which they are paid. The Respondent submits that they should not be so included.

In brief, the issue is whether the word "for" in the phrase "pensionable pay for" the relevant year means, as the Respondent submits, pensionable pay for work done during the relevant year, or, as the Appellants submit, it means pensionable pay received during the relevant year.

By determinations dated 4 October 2013 (First Appellant) and 17 January 2014 (Second Appellant) the Pensions Ombudsman determined that the Respondent's interpretation of clause G1(3) was correct. Pensionable pay "for" the relevant year was not the same as pay received in that year. "For" in this context meant "relating to" in the same sense as the Appellants received pay "for" work as firefighters. In each case the lump sum included arrears of pay that should have been received in previous years, and was not pay only for the year in which it was received, but included pay "for" each of the years to which it related.

By virtue of subsection 151(4) of the Pension Schemes Act 1993, an appeal from a determination of the Pensions Ombudsman lies to the High Court on a point of law.

At the beginning of the hearing before me there was some discussion as to whether these appeals had been lodged in time. It appears possible that the reference to a period of 28 days from receipt of a determination, contained in guidance accompanying the Pensions Ombudsman's determinations, may be incorrect, and that the correct position is that appeals such as these are required to be lodged within the default period of 21 days from the date of the decision, as set out in CPR 52.4(2)(b). In the event I did not need to decide whether that analysis is correct nor whether the appeals were compliant, as the Respondent agreed that time should be extended if and to the extent necessary.

The facts underlying the appeals are not in dispute, and can be briefly stated.

The Respondent was the employer of both the Appellants and was the administrator of their pension fund.

In about 2004 the Respondent introduced a new pay and grading structure and amended its terms and conditions of employment. Instead of being paid by rank, the Respondents' employees were in future to be paid in accordance with their different duties or roles. It appears that each role had two pay elements, "A" and "B", with "B" attracting a higher pay scale. Both Appellants were given new roles pursuant to this change of approach.

The First Appellant, Mr Stokes, retired on 25 September 2009 after completing 40 years of pensionable service. About two years earlier, in November 2007, he was informed by the Respondent that, due to a retrospective role evaluation exercise, arrears of salary were due to him because he had carried out work at a higher level than was represented by his current salary. The arrears, relating to underpayments in the years 2003/4 to 2007/8, totalled £9,474.22 which was paid as a lump sum along with his November 2007 salary. His P60 for that year, 2007/8, showed that, including this lump sum, he had received pay of £39,761.09.

Under the Order, to which I refer in more detail below, the First Appellant's pension was required to be calculated on the basis of his pensionable pay for the final year before retirement or, if greater, for one of the two preceding years.

The First Appellant's pension was calculated by the Respondent on the basis that the highest annual salary of the three years before his retirement was £34,630.79 for 2008/09.

The First Appellant disagreed with the Respondent's approach, and contended that his best-paid year was 2007/8, which was the year he had received the arrears in pay. The Respondent's position was (and is) that under clause G1(3) pensionable pay is pay for the relevant year, which means pay in respect of work carried out for the year. The lump sum payment of arrears was in respect of work in the period 2003/04 to 2007/08, and therefore could not be considered as pay for work carried out in 2007/08 (save for that part of the lump sum which was in fact referable to work done in that year).

The Second Appellant, Mr Reynolds, retired on 1 January 2010, after 30 years of pensionable service.

In November 2007 he was paid £20,544.50, representing arrears of pay in respect of the period from February 2004 to October 2007 inclusive. I was told that the arrears arose partly as a result of the incorrect categorisation of a new job, and partly because of a re-evaluation of his roles within a particular job. His P60 for 2007/08 shows that he received £52,074.24 that year, including the arrears of pay.

When the Second Appellant retired, the Respondent calculated that his highest annual pay over the previous three years was £39,143.08 for 2008/9. The Second Appellant disagreed, contending that the correct figure was £52,074.24 received in 2007/08.

It is common ground between the parties that the relevant legislation is the February 2008 version of the Order. This was the version in force at the time of both the Appellants' retirements, and references hereafter to "the Order" are to that version, unless I state otherwise.

Part G of the Order is entitled "PENSIONABLE PAY AND CONTRIBUTIONS", with a sub-heading "Pensionable pay and average pensionable pay". Rule G1 provides as follows:

The original wording of the key provision, clause G1(3), was slightly different, in that the word "during" was used instead of "for". By an amendment in 2004 the wording was changed to the version with which I am concerned. Thus the original wording of clause G1(3) was as follows:

Both Mr David Peachey, who appeared for the Appellants, and Mr Patrick Halliday who appeared for the Respondent, referred to the amendment in their respective submissions.

Mr Peachey for the Appellants submits that the word "for" in clause G1(3) is grammatically ambiguous and that its meaning falls to be determined by the Court, in the light of a number of factors.

He argued, first, that it is wrong to focus too heavily on the word "for" in the clause, without taking account of the earlier part of the definition of average pensionable pay in G1(3), which provides that average pensionable pay is "the aggregate of his pensionable pay for the year ending with the relevant date" (Mr Peachey's emphasis). He then referred to the definition of "pensionable pay" in clause G1((1) (see above) and, building that definition into clause G1(3), submitted that the combination produced a definition of average pensionable pay as "the aggregate of the aggregate of [G1(1) (a) and (b)] for the year ending with the relevant date". Therefore, he argued, unless there was something additional on which the word "aggregate" in clause G1(3) could bite, it would be superfluous. On the Appellants' interpretation some meaning could be given to the second "aggregate": all the pensionable pay paid in any particular 365 day period, whether it be attributable to work done before that year or during it, is to be aggregated in order to constitute average pensionable pay.

The problem with this argument is that is that it does not take the matter further, because anything which falls to be aggregated under clause G1(3) must still represent "his pensionable pay for the year ending with the relevant date." So one is left with the same issue.

Mr Halliday, for the Respondent, submitted that the word "aggregate" in clause G1(3) meant no more than "total", and might well be otiose. I am inclined to agree. It is not necessary to reach a conclusion, but in my view the word is probably an infelicitous reference back to the same word in clause G1(1), emphasising that pensionable pay can be a construct of various elements. An infelicity of that kind would not be surprising, given the even more mysterious use of the word "average" in the same clause. In that respect the mystery has been explained by Blackburne J in Kent & Medway Towns Fire Authority v Farrand and Hopper [2001] OPLR 357, a decision to which I was referred on another point at the hearing. The learned judge went through the history of what is now clause G1(3), and pointed out that averaging was indeed a central feature of the ancestor of the present scheme, in force in 1971. In that scheme's immediate successor scheme, introduced in 1973, the use of averaging was reduced but still present. When in 1992 the original version of the Order replaced the earlier schemes, the notion of averaging in the computation of average pensionable pay disappeared altogether. However, the word "average" has been allowed to remain in clause G1(3), as a vestigial reminder of what had gone before.

Mr Peachey also relied upon clause G1(6), which requires to be disregarded any reduction in pensionable pay as a result of certain identified matters, when determining average pensionable pay under clause G1(3). He contended that in the light of this there had obviously been a clear consideration of what should be disregarded, and that the list of such items does not include the payment of arrears such as occurred here. The omission from the list of such payment, which must surely be a common event, indicates that those amounts form part of the "aggregate" pensionable pay.

Again, it seems to me that this argument does not help the Appellants. On neither party's interpretation would there be any need to include such payments in the G1(6) list: on the Appellants' interpretation there would be no question of any reduction in pensionable pay by reason of the arrears, and therefore that provision would not be in play. On the Respondent's interpretation, in so far as the arrears consisted of pensionable pay in respect of earlier years, those arrears would not form part of pensionable pay for the relevant year, and so no question of any "reduction" in such pay would arise; and in so far as the arrears consisted of pensionable pay in respect of the relevant year, they would already be included, so that again no question of a reduction would arise.

Finally, Mr Peachey referred to provisions of the Local Government Pension Scheme Regulations 1997, now superseded, which defined the pay relevant for a pension as follows:

He submitted that the lack in the Order of any such definition of the relevant period, together with its silence on backdated or re-assessed levels of pay, supports the meaning of clause G1(3) for which the Appellants contend.

Whether or not a definition of this kind is desirable, it really does not assist in the present case where the wording is distinct. I therefore propose to say no more about this point, which did not seem to be in the forefront of Mr Peachey's argument.

Mr Halliday, for the Respondent, relied upon what in his submission is the plain and ordinary meaning of G1(3), arguing that pay "for" the year in question simply means pay in respect of work done in that year. Thus the arrears of pay which the Appellants received in lump sums in 2007 were (or included) pay "for" earlier years and not "for" the relevant year.

He submitted that there was additional textual support for this interpretation in the definition of "pensionable pay" in clause G1(1) (see above). This provision refers to "the aggregate of (a) the amount determined in relation to the performance of the duties of his role … and (b) the amount (if any) paid to him in respect of his continual professional development." Leaving aside (b) (which was not material in the present appeals), he submitted that the words "pensionable pay" in clause G1(3) could be replaced by "the amount determined in relation to the performance of the duties of his role", so that clause G1(3) could be read as follows (with the substituted wording emphasised):

In my view this does lend some further support to the argument that G1(3) is concerned with pay for performance of work during the relevant year.

Mr Halliday also pointed to the consequences which would arise from the interpretation for which the Appellants contend. They would receive elevated pensions for the rest of their lives, simply because they happened to receive some of their pay in arrear in the form of a lump sum in a particular year, resulting in their pay in that year being artificially inflated. This would create obvious injustice: it would not just amount to a windfall to the Appellants, but it would be very unfair to other employees who were in precisely the same salary and employment position, and who had retired at exactly the same time, but who had been paid their salary at the appropriate times rather than in arrears in a lump sum. Conversely, the Appellants' interpretation would mean that if such arrears of pay were paid after retirement, that pay would be non-pensionable. Mr Halliday submitted that clause G1 could not have been intended to have such unjust consequences. Mr Peachey did not appear to shrink from the theoretical possibility of such consequences, but suggested that in practice they would rarely occur, as there would have to be an underpayment of salary which was then corrected within the final three years before retirement.

I accept the Respondent's submissions. In my judgment the meaning of clause G1(3) is clear and unambiguous in its context, notwithstanding the use of the word "aggregate" (and indeed "average"). Even without the more refined defining term in clause G1(1), on their plain and ordinary meaning, the words "his pensionable pay for the year ending with the relevant date" do not mean his pensionable pay received in the year in question; it means his pensionable pay referable to or relating to or in respect ofhis employment/work done in the year in question. To adopt the Appellants' interpretation would be to strain the language unnaturally in preference to the natural and obvious meaning of the words.

If, contrary to my view, the provision were to be regarded as ambiguous, so that it was capable of bearing either of the two meanings contended for in this case, the result would be the same, for it cannot have been the legislative intention to produce the anomalous and unfair results which the Appellants' interpretation would produce. That interpretation would mean that the amount of pensionable pay in a given year would depend upon the vagaries of the timing of payments, and would be unrelated to the period of employment in respect of which the payments were earned. This would have random and unjust results, as demonstrated by the present appeals, where the Appellants' pensions would be artificially inflated. By the same token, a pension could be artificially and unfairly reduced, if what would otherwise be pensionable pay happened to be received after the employee's retirement. Clearly that would be absurd.

As mentioned above, the word "for" in clause G1(3) of the Order is a replacement for the word "during" in the original version of the clause. At the hearing Mr Halliday suggested that this amendment was probably intended to put beyond doubt what was always the draftsman's intention, and he appeared to acknowledge that on the basis of the unamended version the Appellants' interpretation might have been correct. I agree that the word "during" would have provided some support for Mr Peachey's argument on the ambiguity of clause G1(3), but I do not need to resolve that question.

I should also record that in the course of argument, in addition to the judgment of Blackburne J in Kent & Medway Towns (see above), I was referred to a decision of Andrew Smith J in Norman v Cheshire Fire & Rescue Services [2011] EWHC 3305 (QB). Although each of those cases concerned the proper interpretation of the Order in one or other of its various versions, neither touched upon the specific issue in the present case.

For these reasons the determination of the Pensions Ombudsman in the case of each of the Appellants was correct and these appeals must therefore be dismissed.