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19/05/2023
Pidduck v Eastern Scottish Omnibuses Ltd[1] is often cited as authority for the proposition that a dependant does not have to give credit in a dependency calculation for a pension received by them due to the deceased’s death (e.g. a widow’s pension). But how does that case (based on pension arrangements prevailing in the 1980s) apply to modern pension schemes?
In Pidduck the deceased was retired at the time of his death, having previously been employed by the Bank of England. As was the norm in the 1980s, he had a defined benefit pension based upon his length of service (probably a final salary scheme, although the case report does not say). Upon his death, the pension scheme paid a pension to his widow. Her pension was calculated as a proportion of the pension that he had been receiving. The Court of Appeal held that she did not have to give credit for her widow’s pension in the dependency calculation because it was a benefit accrued as a result of his death and therefore caught by the disregard provision in section 4 of the Fatal Accidents Act 1976 (as amended).
In the meantime, a separate line of authority was developing (unrelated to dependency on pensions), the effect of which was that where the deceased’s income arose from an asset which the dependant inherited upon death, then there was no loss of dependency under section 3 of the Fatal Accidents Act 1976, so the question of the section 4 disregard never arose. As Staughton LJ memorably expressed it in the case of Wood v Bentall Simplex Ltd[2]:
“…can the dependants inherit the goose and still claim that they have been deprived of eggs?”
Wood and the cases that followed it[3] mostly involved assets in the form of a family business, where the deceased was the sole owner and “rainmaker”. Upon his death the dependant widow inherited the business, so the question arose as to whether there was a loss. This led to claimants remodelling the way such claims were presented by claiming that the measure of the loss of the deceased was the cost of replacing his business acumen and labour.
However, the principle remained that where the dependant’s inheritance of the asset yielded (without skill or effort on the dependant’s part) the same income that the deceased would have enjoyed, then there was no loss. As Staughton LJ put it in Wood:
“A rich man with investments worth a million pounds and no other income is killed in a fatal accident caused by a wrongdoer: can his widow both inherit the million pounds and also recover a very substantial sum for her dependency upon her husband?…
In my judgment such cases are not concerned with the question whether a benefit accruing to the widow should be deducted, but with the loss that she has suffered. In financial terms she has suffered none.”
Most recently, in Rix, Nicola Davies LJ stated:
“Capital assets which the dependants had the benefit of during the deceased’s lifetime and continued to enjoy following the death are not taken into account either as part of the dependency or as a deduction from it…
If what was lost was a capital asset inherited by the dependant and it was an asset which was generating income for the dependant prior to the deceased’s death, then no loss has resulted from his death following the inheritance…”
Underhill LJ added:
“The starting-point must be that in a case where a wife has inherited from her deceased husband an asset which generates income without the need for any substantial work on his part she cannot claim to have lost the income of which she previously enjoyed the benefit…”
So the principle is secure and now well-established. But how does it apply to modern pensions?
In defined benefit schemes (previously mainly final salary schemes, now mainly Career Average Revalued Earnings schemes, largely a feature of public sector employment) there is no identifiable asset owned by the deceased that passes to the dependant. Rather (as in Pidduck) there is contractual provision for a dependant’s pension upon the pensioner’s death. In these cases, Pidduck remains good law.
In money purchase schemes (be they personal or employer’s pensions – including auto enrolment schemes, such as the National Employment Savings Trust) a pot accumulates as a combined result of the pensioner’s/employer’s contributions plus tax relief and (hopefully) fund growth. Upon death of the pensioner (before or after the pension starts to be drawn) the fund will (either automatically or pursuant to the notional discretion of the pension trustees) pass to the beneficiary under the pensioner’s will/as nominated recipient under the scheme. In the usual case, therefore, the dependant spouse will acquire the full value of the fund.
If so, then the dependant has inherited the goose and can, without skill or effort on their part, collect eggs. There is, so runs the argument, no loss.
There are contrary arguments. If the rule in Pidduck applies to defined benefit pensions, is it not anomalous for a different rule to apply in money purchase schemes? But that can be turned round. If the rule in Wood applies to investments other than pension funds, why should a different rule apply simply because of the tax advantages/additional regulatory restrictions that relate to the fund by virtue of it being a pension?
Perhaps the answer (as with so many issues in loss of pension cases) lies in the seminal case of Auty v National Coal Board[4]. One of the cases in the conjoined appeals was that of Mrs Popow. Her husband had been killed due to the NCB’s negligence at work and she brought a dependency claim based upon on (a) his earnings during his working years, (b) his pension in his retirement years and (c) the widow’s pension that she would have received when he naturally predeceased her, despite the fact that Mrs Popow had been awarded a widow’s pension when he actually died.
In relation to (c), the Court of Appeal dismissed that claim. As Oliver LJ (later Lord Oliver) put it
“But it is still necessary to establish that the dependant has in fact suffered an injury (i.e. lost something) as a result of the death. Here what is claimed as the injury is the loss of the very thing (i.e., a widow’s pension) that the widow in fact has gained as a result of the fulfilment of the conditions of the scheme earlier rather than later, and whilst section 4 precludes setting the benefit of the pension against damage suffered under some other head, there is nothing in that section which requires one to assume, in ascertaining whether there has been any injury at all, that that which has happened in fact has not happened.” (emphasis added).
Might the answer to the Pidduck/Wood conundrum be that where the dependant receives the very thing (i.e. the deceased’s pension fund) that would have been the source of the dependency, there is no loss under section 3? Where (as in Pidduck) the dependant receives something different (i.e. a widow’s/dependant’s pension) then there is a loss under section 3 and the section 4 disregard bites on the dependant’s pension.
Whilst we must await authoritative guidance from the courts, it appears that in money purchase pension cases, the claimant/dependant’s goose may be cooked.
[1] [1990] 1 WLR 993
[2] [1992] PIQR 332
[3] E.g. Cape Distribution Ltd v O’Loughlin [2001] PIQR Q8 , Welsh Ambulance Services NHS Trust v Williams [2008] EWCA Civ 81, Head v Culver Heating Co Ltd [2020] PIQR Q2 and Rix v Paramount Shopfitting Co Ltd [2021] 4 WLR 109.
[4] [1985] 1 W.L.R. 784.
Call: 1991
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