TPO has partially upheld a complaint concerning an overpayment built up from 1 December 1995 to 1 April 2020. The trustees were not able to recoup the overpayments built up before 1 August 2019. The remainder of the overpayment could be recovered, but subject to first obtaining the approval of the County Court.
The overpayment arose as a result of the events in Burgess v BIC UK (10 May 2019), in which the Court of Appeal held that a historic improvement to increases of pensions in excess of GMP had not been validly granted in respect of pensionable service before April 1997 (“the Pre 97 Increases”). This meant that some pensioners had been overpaid pensions over a long period of up to around 25 years. Mr E retired in 1995. His overpayment built up over a period of 24 years and 8 months, to a total of £90,934.
In Burgess v BIC UK, at first instance, the High Court confirmed that a Court could not determine whether members had a defence to recovery of the overpayments on a “group” basis. The starting point was that the Trustees had a duty to seek to recover the overpayments, but it may be inequitable for them to do so in a particular case. This would depend on each individual member’s circumstances.
From the time Mr E retired, TPO found that, on the balance of probabilities, he would have received annual letters notifying him of the increase applied to his pension “in accordance with the scheme rules”.
A letter was sent to pensioners of the Scheme, including Mr E, on 22 February 2013 advising that “a discrepancy had been identified between the Scheme’s governing documentation and the administrative practice adopted for pension increases” and “uncertainty has arisen as to whether members were entitled to be paid” the Pre 97 Increases (“the February 2013 Announcement”). Future increases were suspended from 6 March 2013. However, overpayments continued to build up relating to past increases.
In March 2017 and May 2019, further announcements were sent to Scheme members with details of the Court case concerning whether the Pre 97 Increases were validly granted. The announcements did not explain that overpayments were potentially continuing to build up, nor that overpayments might need to be repaid or recouped from future pension instalments.
In March 2020, the Trustees notified Mr E that they had to reduce the amount of his pension due to the Court of Appeal’s decision and that they intended to recoup (ie deduct) the overpayments from future instalments of pension. Mr E’s daughter, Ms E, complained under the Scheme’s IDRP on his behalf before submitting a complaint to TPO.
Mr E accepted that his pension would be corrected going forward, but disputed the proposed recoupment of the overpayments on the basis that recovery would be unfair. Mr E had moved to a new home in 2021 for health reasons, and felt the proposed recoupment plan was unaffordable based on his current monthly income and expenditure. In addition, the issue had caused Mr E and his wife “considerable stress” and affected their health.
Since the Trustees confirmed they were seeking to recover the overpayment by recoupment, but any debt outstanding on Mr E’s death would not be considered a debt owed to the Scheme, TPO considered:
Relevant considerations included that Mr E had acted in good faith in spending his overpaid pension. He had no reason to suspect, and could not have known, that he was not entitled to the Pre 97 Increases until the point that the outcome of the Court of Appeal’s decision and its implications for Mr E were known. Although the February 2013 Announcement explained that there was uncertainty around the validity of the increases, it was not worded clearly enough for a “lay pensioner” to understand that overpayments were continuing to build up and may have to be repaid.
TPO was comfortable based on the available evidence that Mr E was “the sort of person who lives within his means”, and if he had known his correct pension entitlement, he would have adjusted his expenditure down to his available income. Mr E and his wife had spent the overpayments irreversibly on an improved standard of living and would suffer detriment if they had to repay them.
Among other factors, TPO also considered whether preventing recovery of Mr E’s overpayment would involve favouring Mr E over other members of the Scheme in terms of the impact on Scheme funding. In this case TPO decided it would not, since the employer was required to fund any deficit under the statutory funding requirements and so there would be “no direct impact on the level of benefits provided to other members of the Scheme”.
TPO determined that:
The remaining overpayment of £6,554 could be recouped from Mr E’s pension at a rate of £200 per month. However, following the recent case TPO v CMG Pension Trustees Limited and CGI IT UK Limited, it was clear that, to make the necessary reduction, the Trustees first had to obtain the approval of the County Court in order to satisfy the requirements of section 91 of the PA95.
In addition, the Trustees were ordered to pay Mr E £1,000 in recognition of the significant distress and inconvenience suffered.
This determination gives a detailed analysis of the possible defences available to members where trustees seek to recoup overpayments from future pension instalments, comparing these to the defences members could raise against a claim seeking direct repayment of the overpaid sums. TPO notes that four other complaints by affected members are also being considered, and so it may apply the same approach in these and other future overpayment complaints.
It is another example of a case where the member received relatively modest overpayments (albeit in this case over a long period of time) and TPO has accepted the member “lived within their means”, ultimately preventing recovery of all of the overpayment.
TPO expects trustees to consider what defences might be available to an overpaid member under the scheme’s IDRP, even if the member has not specifically raised a particular defence themselves.
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