Mr Justice Peter Smith's ruling will be a relief for the Department for Education and Skills who could have been liable to pay millions of pounds to others in similar situations if they had lost the case, and East Sussex CC as her former employer.
Following her death in 1997, the executors of the spinster's will claimed for the arrears - and the Department for Education and Skills stumped up£160,000 in February 1998.
But the department refused to pay£200,000 interest on the sum prior to 1 October 1996, pursuant to the Teachers' Pension Regulations 1997.
That prompted Sally Farley, of Faversham, Kent and Charles 'Jim' Higgs - the executors of Ms Dann's estate - to complain to the pensions ombudsman.
They alleged the DfES and East Sussex CC had failed to advise Miss Dann of what she was entitled to - and he upheld their complaint.
But Mr Justice Smith overturned that ruling, finding 'clear flaws' in the ombudsman's report.
He said he should have dismissed the complaint when Mr Higgs and Mrs Farley failed to establish why Miss Dann had not claimed her pension.
The judge observed that, in her position as a headmistress, Miss Dann would have known about the scheme, and he said she also had 35 years teaching experience.
In reaching his conclusion, the judge ordered that Mr Higgs and Mrs Farley - who spent the initial£160,000 on clearing debts and buying a property - pay almost£10,000 in legal costs bills.
That ruling came even though the ombudsman was at fault, and they had been 'reluctantly drawn into the appeal'.
STRAND NEWS SERVICE