This judgment concerns a decision of the Pensions Ombudsman ( Ombudsman ) dated 12 June 2024 ( Decision ) by which he upheld a complaint by Mrs Isabella Alexis ( Mrs Alexis ) that she was entitled to be paid a ‘bridging pension’ (or, as I shall call it, a ‘supplement’) from the Spirit (Legacy) Pension Scheme ( Scheme ) until the age of 66.

The Scheme trustee ( Trustee ) maintains that, under the relevant provision of the applicable 2001 Scheme rules ( 2001 Rules ), Mrs Alexis was only entitled to the supplement until 65.

With the permission of Richards J granted on 14 November 2024, the Trustee has appealed the Decision.

At the appeal hearing, the Trustee was represented by Mr James Walmsley of counsel. Mrs Alexis appeared in person, remotely by video link.

Mrs Alexis joined the Scheme in May 1982. She became a deferred member in October 2006.

Aon is the Scheme Administrator. On 13 July 2018, Aon wrote to Mrs Alexis about her forthcoming retirement from the Scheme, setting out the options for her to receive her benefits, including an annual pension and tax-free lump sum payment. Aon also explained that a bridging pension would be payable to her and that this would “cease at State Pension Age”. Aon did not explain then the meaning of that term.

In October 2018, Mrs Alexis turned 60 and retired from the Scheme.

On 4 April 2019, Mrs Alexis wrote to Aon explaining that she had been advised that the bridging element of her pension would cease on her 65 th birthday. She took issue with this, noting that the Scheme wording provided that this would cease at her state pension age. Since the Government had increased her state pension age some years earlier, she claimed that she was entitled to be paid the supplement for longer than had been advised.

On 19 February 2020, Mrs Alexis registered a complaint under the Scheme’s two-stage internal dispute resolution procedure ( IDRP ).

On 5 May 2020, the Trustee provided its stage one response to Mrs Alexis’ complaint. This explained that there were two possible interpretations for the expression “State pension age” in the 2001 Rules. The first was that this was fixed by reference to the legislation in place at the time the 2001 Rules were introduced. Another possible interpretation was that this was fixed by reference to the legislation in place at the time the member ceased to accrue benefits in the Scheme. The Trustee had historically administered the Scheme on the latter basis. In any event, either interpretation led to the same outcome for Mrs Alexis, namely a supplement payable until her 65 th birthday. The Trustee rejected the further possible interpretation that legislative amendments introduced after the 2001 Rules to increase state pension age meant that Mrs Alexis should receive the supplement until her actual state pension age of 66.

The Trustee therefore did not uphold Mrs Alexis’ complaint but recognised that the information provided to her around the time of her retirement was insufficiently clear and offered her £500 compensation in recognition of that issue.

Mrs Alexis did not accept this offer, confirming instead on 23 June 2020 that she wished her complaint to be moved to stage 2 of the IDRP.

On 4 February 2021, the Trustee issued its stage two response, affirming the stage one decision. The Trustee also explained that it had received further legal advice to the effect that, unless the 2001 Rules contained “express provision providing for statutory references to be interpreted as including subsequent amendments, they should be treated as fixed at the date the rules themselves were signed”. Nevertheless, the Trustee increased the compensation offer from £500 to £1,000 in recognition of the delay in its response.

Mrs Alexis then referred her complaint to the Ombudsman, following which, the offer of compensation was increased to £1,500.

An Adjudicator considered Mrs Alexis’ complaint, finding that further action was required by the Trustee. The £1,500 offer was sufficient recognition of Mrs Alexis’ distress and inconvenience. However, the Adjudicator was also of the view that the definition of “State pension age” in the 2001 Rules by reference to paragraph 1 of Part I of Schedule 4 to the Pensions Act 1995 ( Act ) encompassed subsequent amendments to that legislation, including that by which Mrs Alexis’ state pension age had been increased to 66.

The Trustee did not accept the Adjudicator’s opinion and the matter was considered by the Ombudsman who confirmed his agreement with the Adjudicator and upheld Mrs Alexis’ complaint in the Decision.

Richards J granted the Trustee permission to appeal against the Decision on both grounds advanced, namely that the Ombudsman had fallen into legal error in:-

There was no appeal against the finding with respect to Mrs Alexis’ distress or inconvenience or the related award of £1,500 compensation.

I should also add that, in giving permission to appeal, Richards J ordered pursuant to CPR, Part 52.19 that there should be no order for costs as between the parties to the appeal.

After the commencement of the appeal, it became apparent that the Trustee had paid Mrs Alexis the supplement to her 66 th birthday despite its position that this only ran until 65. Although this does not affect the issue I must decide, it does give rise to a potential complication if the Trustee is correct in its construction and there has been an overpayment.

Mrs Alexis was not represented at the appeal hearing and she did not seek to address me on the detailed legal issues. However, she made known her position articulately and courteously. I am grateful for her representations which I have fully taken into account.

Mrs Alexis explained that she had been employed by Scottish & Newcastle for 35 years or so. This was then sold and she was made her redundant after around five years of working for her new employer. When she applied for her pension, she was told that the supplement stopped at 65. She disagreed with this and rejected the £1,000 compensation offered by the Trustee for its related errors. She then went to the Ombudsman, won her case and received her pension, including the supplement.

Mrs Alexis’ essential position is that the Trustee should have changed its paperwork when the Government guidelines for the payment of state pension changed. More recently, Mrs Alexis had received e-mails from the Trustee with a view to deducting £220 per month from her pension for a period of one year if the appeal were to succeed. However, having made multiple errors, and her complaint having been upheld, she feels that the Trustee should be held accountable.

Finally, I am also grateful to the Trustee’s counsel for what I consider to be his fair presentation of matters on the appeal, including those arguments which potentially undermined his client’s interpretation of the 2001 Rules.

Since the appeal is essentially concerned with a point of legal construction, I first summarise the relevant parts of the 2001 Rules, as to which:-

The Trustee maintains that the reference in Rule 5.5 to this part of the Act is ‘static’ such that the defined term “State pension age” has the meaning as originally enacted by that paragraph, not as may have been and/ or as may be amended after the introduction of the 2001 Rules. Mrs Alexis, by contrast, says that the definition accommodates the increase in her state pension age which came into effect in 2012 such that the supplement was payable until she was 66.

As to that original enactment, s.126 of the Act was entitled “Equalisation of pensionable age and of entitlement to certain benefits” and provided in relation to Schedule 4 that:-

Schedule 4 was entitled “Equalisation”, with Part I entitled “Pensionable ages for men and women - Rules for determining pensionable age.” In this regard, the Trustee notes that Rule 5.5 describes the statutory reference in similar but not identical terms as the “rules for equalisation of pensionable ages for men and women”.

The original paragraph 1 of Part I of Schedule 4 to the Act explained that the following rules applied for the purposes of certain specified enactments, and instruments made thereunder, relating to social security:-

The table which followed then went on to identify when pensionable age was attained for those women born between 6 April 2050 and 5 April 1955, rising progressively from 60 for the former to 65 for the latter.

The original paragraph 1 therefore had the effect of equalising state pension age for men and women. Under rule (4) of these original provisions, Mrs Alexis’ state pension age was 65.

In 2002, the relevant statutory references in paragraph 1 were updated to refer, additionally, to the new State Pension Credit Act 2002.

In 2007, these provisions were substantively amended, including with respect to their purpose and effect:-

Despite these changes, Mrs Alexis’ pensionable age remained 65 by operation of rule (4).

Subsequent amendments were introduced through the Pensions Act 2011. The effect of Part 1 of Schedule 4 to the Act was now described more simply as “ … to equalise pensionable age for men and women and then to increase it.”

These amendments accelerated (i) the equalisation of pensionable age for women born between April and December 1953 and (ii) the increase in pensionable age for all persons born between December 1953 and April 1960. The maximum state pension age remained 68.

This change increased Mrs Alexis’ pensionable age from 65 to 66 by operation of the amended rule (6).

Further amendments in 2014 accelerated the increase in state pension age for those born between 1960 and 1969. Mrs Alexis’ pensionable age remained 66. The maximum state pension age remained 68.

The question arising on this appeal is whether Mrs Alexis’ “State pension age” within the meaning of Rule 5.5 refers to the position under the rules in paragraph 1 of Part I of Schedule 4 to the Act as originally enacted in 1995 or as has been (or may be) subsequently amended. As to the principles of construction generally in the context of pension schemes, the position was succinctly summarised by Trower J in De La Rue v De La Rue Pension Trustee [2022] EWHC 48 (Ch) (at [48]) in the following terms:-

Despite the importance of the text of the rules of the Scheme, the Trustee also relies on the propositions that (i) where the text admits of two rival interpretations, one matter to be considered is which of them is more consistent with business common sense and (ii) the provisions of a pension scheme should wherever possible be construed to give it reasonable and practical effect ( Britvic v Britvic Pensions [2021] EWCA Civ 867 [2022] 2 All ER 457 at [69]-[70]). Although considerations of business common sense and reasonable and practical effect can properly be relied on with a view to resolving which of two available rival interpretations are to be preferred, they cannot be relied upon to create an ambiguity not present in the language ( Britvic at [70]-[72]). The principle of giving reasonable and practical effect to the scheme is neither autonomous nor overriding ( BBC v BBC Pension Trust Limited & Anor [2024] EWCA Civ 767 at [14]-[15]). Here, however, the Trustee says that there is an ambiguity such that these considerations are relevant.

As to the specific construction issue arising in this case, in Ashworth Frazer Limited v Gloucester City Council 1999 WL 249792 [1999] WLUK 418, The Times, April 1, 1999, the court held (at [p.5]) that:-

In William Hare Ltd v Shepherd Construction Ltd [2009] EWHC 1603 (TCC), Coulson J (as he then was) cited (at [30]) to part of the above from Ashworth Frazer , also noting by reference to Brewers’ that, whether reference in a contract or deed to legislation is to the legislation for the time being in force is a question of the proper construction of the words of incorporation in the context in which they are used.

The Ombudsman distilled (at [31]) the ‘heart’ of the issue for determination, namely whether (i) reference to “State pension age” in the 2001 Rules was ‘dynamic’ and linked to underlying changes in the legislation so that, as Mrs Alexis argued, it is defined by reference to her actual state pension age (66) or (ii) as the Trustee argued, it is ‘fixed’ and set by reference to the legislation as it stood when the 2001 Rules were executed so that the supplement would end when she turned 65. In considering that issue, the Ombudsman noted:-

As the Trustee fairly accepted when it applied for permission to appeal, and Richards J recognised when he granted it, matters were put before the Ombudsman in somewhat different terms from how they were argued on the appeal, with the emphasis before me on the draftsman’s description of the legislative reference in Rule 5.5, as well on the non-normative nature of that reference.

As a preliminary matter, I accept that there is no presumption either way as to whether the reference in Rule 5.5 to paragraph 1 of Part I of Schedule 4 to the Act is to that for the time being in force.

In this case, the legislative reference is used to define the necessary factual conditions for initial and continuing eligibility for payment by the Scheme of a member’s pension without reduction on account of the Pensionable Deduction. Such eligibility itself is not found in statute but in the operative provisions of the 2001 Rules. This contrasts with other legislative references in the 2001 Rules which do perform a normative function including, for example, compliance (in different contexts) with laws as to ‘contracting-out’, ‘preservation of benefit’ and ‘revaluation of accrued benefits’ in the Pension Schemes Act 1993 or, as referred to in the Decision, ss.36 and 40 of the Act with respect to the exercise of the Trustee’s investment powers. Given the more limited function performed by the legislative reference in Rule 5.5, I agree that this falls more naturally on the ‘convenient shorthand’ side of the line.

Unpacking the language of that shorthand, paragraph 1 of Part I of Schedule 4 to the Act is somewhat lengthy and complex. As such, it is unsurprising that a statutory reference might be used rather than reproducing the statutory text. This technique does not, in itself, suggest an intention to refer to the legislation as it might apply from time to time. Perhaps of greater significance, however, is that, if a dynamic meaning had been intended, that could have been achieved more simply by reference, for example, to the actual receipt of a state pension, without any need to refer to the relevant legislation at all.

Of greater significance still are the express words of that shorthand, not limited to a reference to the rules in paragraph 1 of Part I of Schedule 4 to the Act, but going on to explain in the draftsman’s language (in parentheses) the purpose of those rules, namely “for equalisation of pensionable ages for men and women”. In my view, that limited description by reference to equalisation indicates that the reference to the Act was not intended to encompass future changes on account of increases to state pension age more generally.

This point ties in with the statutory context. When the 2001 Rules were introduced, state pension ages had most recently been the subject of reform by way of equalisation achieved through the Act. There had been no change in the legislation since 1995 and, therefore, nothing in the statutory context to suggest in 2001 that increases to state pension age more generally were anticipated, let alone by way of later amendment to that particular paragraph of Schedule 4. Indeed, the next major reform to increase state pension age was introduced in 2007, an increase that could easily have been effected through an alternative legislative route rather than by extension of the same paragraph in which the equalisation measures had been introduced more than a decade earlier.

In my view, the above matters militate firmly against a dynamic interpretation. The Trustee refers to such an interpretation as tantamount to writing a ‘blank cheque’. I prefer the language of Ashworth Frazer as to the rarity of parties who have used a convenient statutory shorthand to describe a factual situation intending that situation to vary unpredictably with the vagaries of future legislation. Although the Ombudsman considered that there was some expectation that laws will change in the context of the long term nature of pension schemes, it did not seem to me that it would be evident in 2001 that there would be future changes on account of increases to the state pension age beyond the equalisation measures introduced in 1995. Moreover, the long term nature of pension schemes seemed to me to be one of the reasons why the draftsman of the 2001 Rules would wish to avoid unnecessarily tying the Scheme benefits payable to members to unpredictable future changes to state pension legislation.

Much more likely in my view is that the draftsman would wish to maintain flexibility by reserving to the Trustee the ability to keep under review how any future changes to the state pension age might impact benefits payable under the Scheme and whether amendments to the 2001 Rules might be appropriate on that account. Were it otherwise, the constraints on the Trustee’s power to amend with the consent of the Principal Employer (in particular, Rule 27(ii) of the 2001 Rules) would mean that the effects of a dynamic reading of Rule 5.5 could not be reversed, at least prior to the introduction of certain new legislation in 2013 which amended the Pension Protection Fund and Occupational Pension Schemes (Modification of Schemes) Regulations 2006 (SI 2006/759). That legislative development too could not have been contemplated in 2001.

Although not described as such in the 2001 Rules, the supplement does perform a ‘bridging’ role pending payment of state pension. However, being some fraction of the lower earnings limit, the supplement is not a match for the state pension and therefore already acts as an imperfect bridge. The fact that a static reading of Rule 5.5 might, with subsequent legislative changes to increase state pension age, compound that imperfection in the form of a possible gap between the last payment of the supplement and actual receipt of the state pension does not, in my view, militate in favour of a dynamic reading.

The Trustee fairly raised a number of further matters that might point to a possible dynamic construction of Rule 5.5, some not before the Ombudsman. Of greatest significance in this regard was Rule 6.2 of the 2001 Rules. This contains a defined term “State P ension A ge”, slightly different from the defined term “State p ension a ge” in Rule 5.5. Despite that difference, the underlying definition is identical for both. As to the context for its use, Rule 6.2 permits the Trustee to allow members whose Scheme pension is in payment before “State Pension Age” to choose to increase it before that age and reduce it thereafter so that the member’s pension before is “more nearly” equal to the member’s combined pension from the Scheme and the State thereafter. Given the temporal references, it could be said that the effect of Rule 6.2 is to equate “State Pension Age” with when the state pension comes into payment such that a dynamic interpretation is to be preferred which, given the same language of both definitions, should be read across to Rule 5.5 as well.

Although Rule 6.2 uses a definition which contains identical wording to Rule 5.5, I accept the Trustee’s contention that they are, in fact, separate definitions that apply to the particular rules concerned. That much is evident from the apparently deliberate use of slightly different defined terms in each rule, with the meaning of each stated to be for the purpose of the particular rule in which it features. More substantively, those purposes are different, Rule 5.5 being concerned with a member’s entitlement to a particular supplement or bridging payment, Rule 6.2 with the potential exercise of the Trustee’s discretion to pay the Scheme pension in a manner which ‘evens out’ a member’s aggregate Scheme and state pension income. As the Trustee also notes, Rule 5.5 comes at a cost to the Scheme whereas Rule 6.2 might be expected to be cost neutral. It also appears that the circumstances in which Rule 6.2 might apply are broader.

Finally, a number of the other considerations above with respect to the meaning of Rule 5.5 are also relevant to Rule 6.2. For example, despite its temporal references, Rule 6.2 does not expressly equate “State Pension Age” with actual receipt of state pension. Moreover, the description of that legislation used by Rule 6.2 is again concerned with the equalisation of pensionable ages for men and women, not increases in state pension age more generally. Although those increases from 2007 onwards may add complexity, Rule 6.2 too would still appear to be workable on its terms based on the legislative position in 2001. Ultimately, however, it is not necessary for me to reach any final view on the meaning and effect of Rule 6.2. For present purposes, I am satisfied that its co-existence with Rule 5.5 in the 2001 Rules does not materially advance the analysis.

As for the other matters which might suggest a possible dynamic interpretation of Rule 5.5, the Trustee pointed to the Scheme’s administrative practice not to adopt a strict, static interpretation rather than defining “State pension age” by reference to the legislation in force at the time the relevant member leaves service. According to correspondence from the Trustee’s solicitors following the hearing, even if I were to find the static interpretation to be the correct one, that practice will continue with the consent of the Principal Employer and the exercise of such powers as are required for that purpose. I accept that this practice does not assist in the proper interpretation of Rule 5.5. My view is based not only on the limited utility for construction purposes of such practices indicated by the authorities ( De la Rue at [107]-[108]), but also the fact that the Scheme’s practice here does not coincide with a construction contended for by either party.

The Trustee also referred me to a Scottish & Newcastle Staff Pension Scheme booklet which appears to have been drafted around 2000. This was not produced to the Ombudsman rather than in the context of this appeal. That booklet refers (at [8]) to the supplement being payable until “State Pension Age”, with “State Pension Age” defined (at [5]) as “the age at which you become eligible for pension benefits from the State…”. Although the Trustee was correct to draw this matter to my attention, I accept that such descriptions of scheme rules are not relevant to my determination ( Lloyds Bank Pension Trust [1996] Pens LR 263 at [24], applied in ITN v Ward [1997] Pens LR 131 at [23] and Akester v Kingston [2005] Pens LR 153 at [85]). The language of the booklet does, however, show that a dynamic meaning could easily have been achieved without any legislative reference.

Finally, I was also referred to the Interpretation Act 1978. Like the Ombudsman, I did not consider that this offered any assistance. S.20(2) is concerned with, amongst other things, statutory amendments, but this does not apply to deeds. Even if it did, I accept that it would not apply to amendments post-dating the deed. I also agree that ss.17(2)(a) (repeal and re-enactment) and 19 (citation of other Acts) are not relevant in the present context.

Taking all the above matters into consideration, I have come to the view that the proper construction of Rule 5.5 is a static one and that Mrs Alexis’ “State pension age” for that purpose was 65, not 66. Albeit largely based on legal arguments not aired before the Ombudsman, I therefore allow the appeal and set aside paragraph 50 of the Decision.

I appreciate that Mrs Alexis will be disappointed with this outcome. I can also well understand why she thought that she was entitled under the 2001 Rules to payment of the supplement until her actual state pension age. However, as unwelcome as my decision might be for her, I have come to the clear view, as a matter of the proper construction of Rule 5.5, that it did not extend to later legislative changes on account of increases in state pension age such that the supplement was only payable until Mrs Alexis reached 65.

In terms of consequential matters arising from my judgment, Richards J has, of course, already dealt with the question of costs in paragraph 2 of his order dated 14 November 2024 such that neither party may recover the costs of the appeal from the other. There was some suggestion by the Trustee that any overpayment of the supplement could be addressed by remitting the matter back to the Ombudsman. I was not convinced at the time that this course was open to me. That was my provisional view then. If the Trustee wishes to seek to persuade me otherwise, I will hear further from the parties about it and/ or on any other consequential matters which cannot be agreed and/ or may require my further input.