Trustees looking to reclaim overpayments will find useful guidance in a recent Pension Ombudsman (PO) determination involving Mr E, who was a pensioner member of the BIC UK Pension Scheme (Scheme). In this complaint, the PO examined trustees' ability to recover overpayments by reducing future pension instalments, a process which is called "recoupment".
In 2019 the Court of Appeal found that increases to pensions in payment, granted by the Scheme's trustee in 1991 had not been validly implemented and this could not be remedied retrospectively. The trustee had therefore overpaid benefits to a number of pensioners. Mr E complained about the trustees' attempt to recoup the overpaid benefits.
The PO upheld the complaint in part. The trustees were not able to recoup overpayments made prior to 1 August 2019, this being the date from which the member could not show his spending was up to the level of his pension income or that he was reliant on the overpayments to meet his expenses. The trustees' delay in bringing a claim also prevented them from recovering overpayments from February 2013, the date that they announced to members that there was a potential issue with the calculation of benefits.
The PO additionally awarded Mr E £1000 for the significant distress and inconvenience he experienced.
Trustees should now consider whether their own processes for recouping overpayments are adequate, and in particular:
- trustees should ensure that any concerns about potential overpayments are communicated appropriately and with sufficient detail so that members can understand the implications of the overpayment including any future recoupment of ongoing overpayments
- trustees should look to "stand in the shoes of" members who are bringing complaints about the trustees' attempt to recoup so that they can identify whether the member might have a valid defence
- following a recent Court of Appeal decision, where trustees want to reduce member benefits to recover the cost of any overpayment, if the member disputes this the trustees will need an order from the County Court authorising them to commence recovery. Trustees are also required to provide the member with a certificate showing the amount of set-off and the impact on benefits. Without this, the PO will determine that they are not entitled to the remedy of recoupment. Trustees will also find it helpful to consider the PO's Factsheet relating to the recovery of overpayments and the requirement for a court order.
Trustees to engage with members about possible defences
The PO pointed out the position of disadvantage that members start from, often framing claims in general terms of unfairness. Being non-lawyers and unrepresented, they are not able to articulate the various legal defences that may be available. In view of this, the PO considered it would be good practice for trustees to engage with members and explore whether they might have a defence to recoupment, reflecting the PO's informal complaint process.
Two of the defences that the PO considered were:
- Change of position. This may arise where a member has received an overpayment in good faith, the money has been spent in such a way that it cannot be reversed and where any goods bought cannot be sold, and the member would not have incurred the expenditure but for the overpayment.
- Estoppel by representation. This is where there is a clear representation or promise made to the member, it was reasonably foreseeable that the member would rely on the representation, the member did rely on it, and the member suffered detriment as a result.
Evidencing a change of position
In 2013, the trustees issued an announcement to members which explained that the trustees and employer had received conflicting advice about the validity of the 1991 change to pension increases. While the announcement explained that future increases would not be made, it did not go on to explain what this might mean for members, ie that members may still receive overpayments because previous increases had been baked into the rules, and that these overpayments might need to be recovered at some later date.
The PO found that there was no reason why Mr E would question his entitlement before the 2013 announcement. Additionally, as the 2013 announcement failed to explain the impact of the overpayments on members, Mr E had no reason to suspect that he was receiving overpayments after the 2013 announcement either. Accordingly, Mr E had acted in good faith in spending the overpayments he received.
In terms of detriment, the PO considered that Mr E had expected that he would continue to receive future payments in full and so had adopted a lifestyle reliant on those higher payments. If his pension was then adjusted to recoup the overpayments, he would have suffered detriment because those expenditures could not be reversed.
The PO considered that it was sufficient that Mr E and his wife could show they had raised their standard of living, and so they did not need to present detailed records of purchases or a complete set of bank statements to prove this.
That was the case up until August 2019 when the member had started to build up savings in his bank account so that he was no longer using up his pension income to meet his cost of living. From this point, therefore, the member was no longer able to argue that he had changed his position because of the overpayments. The Trustees could therefore recover the overpayments made from August 2019 (but this was subject to the PO's consideration of whether the trustees had waited too long to assert their claim for the money – see below).
Estoppel by representation
The PO considered that sometimes a representation that a member is entitled to the money he has received will be implicit in the making of the payment. Whether this is the case will depend on the surrounding circumstances, including the relationship between the parties and any other communications. For example, "where the relationship between the payer and payee is such that the former is under a legal obligation to ascertain the payee's entitlement correctly, the payment may give rise to an implied representation that the money is due". The trustees were under such a legal obligation, primarily because there were no caveats (eg that the trustees can only pay benefits in accordance with the Scheme's rules) in the retirement statement, monthly payslips and P60s sent to the member. It was therefore reasonably foreseeable that the member would rely on the express representations and implied representations that he was entitled to the money. The trustees were estopped from reclaiming the money paid before the 2013 announcement.
However, once the 2013 announcement was made, the PO did not think it could be argued that Mr E had received sufficiently clear representations that he was entitled to the money. The PO considered that any subsequent payslips and P60s and implied representations arising because of the continuation of payments would need to be read in the context of the announcement even though the drafting was not clear.
Laches
A member may have a defence to an overpayment recoupment claim, known as a "laches" defence where:
- the trustee has delayed in asserting their right to reclaim overpayments;
- this delay can be interpretated as being a waiver of a right to reclaim; or
- it would now be unreasonable to reclaim the money, because of circumstances affecting the member, eg, if the issue relating to the overpayments had been adequately explained to the member, he could have planned ahead in anticipation of having to return the money.
The PO explained that the time for assessing whether there had been delay started to run from the point when the trustees became aware that there was potentially an issue with the calculation of benefits rather than when this was certain.
The PO noted that it was over six years from when the trustees identified that there was a potential issue until the Court ruled on the matter. During this time the trustees were aware that potentially overpayments were continuing and may have to be repaid. They communicated this to members in the 2013 announcement. The PO considered it was "just not acceptable" for matters to have progressed at the speed they did. Further, the PO considered that if the position had been adequately explained to Mr E, it would have allowed him to set the additional overpayments aside until the issue was resolved. Consequently, the PO considered that the trustees were prevented because of their delay from recovering money from the date of the 2013 announcement up to 31 July 2019 (after which point the member had built up a surplus in his bank account).
In reaching his decision the PO also considered the impact on the funding of the Scheme in not allowing recovery of the overpayments and whether it was equitable to allow a defence that may involve favouring some members (those who had received overpayments) over others (those who had not).
