The Pensions Ombudsman (“TPO“) has recently held that it would be inequitable for the Trustees to recoup the majority of a member’s overpaid benefits. Some of the reasons why may surprise you!
Background
In the Court of Appeal case of Bic (UK) Plc v Burgess [2019], a beneficial change to the Scheme rules was held to be invalid. These benefit changes were more generous to members and, consequently, the members had been overpaid.
In the subsequent TPO case of Bic UK Pension Scheme (CAS-55100-G3W9), the Trustees of the Scheme sought to recoup overpayments from future instalments of pension. The applicant, Mr E, challenged the Trustees’ decision to recoup the overpayments, arguing that it was unfair.
TPO considered in detail the principles that would be applied when considering the recoupment of overpaid benefits. In this case, Mr E’s complaint captured the following three defences:
- change of position;
- estoppel (by representation or convention); and
- limitation/laches (unnecessary delay).
It was argued that the defences of change of position and estoppel did not apply to recoupment as recoupment is based on equity law and does not stem from the common law of unjust enrichment. Whilst TPO agreed with this in principle, TPO concluded that recoupment could not be exercised where it would be inequitable and the defences of change of position and estoppel were ultimately based on equitable principles. Mr E was, therefore, not as defenceless as it seemed.
Change of Position
The Company argued, in support of the Trustees’ position, that a change of position defence only applied where a member had, in good faith, spent the pension payment that they were being asked to repay. The defence could not apply to recoupment of future pension payments as the member has not spent them yet.
However, TPO disagreed on the basis that Mr E typically spent the amount of his monthly pension income, relying on the fact that this was his entitled income which he expected to receive each month. He would therefore suffer detriment if overpayments were to be recouped out of his future pension. Therefore, TPO found it inequitable to recoup the majority of the overpayments in this way.
Some may be surprised by this rationale! The case law to date on change of position has tended to find that the defence applies in circumstances where the member has spent money, as opposed to where the member has relied on an expectation of future pension payments. It remains to be seen whether (if tested) the courts, would take the same view as TPO.
Estoppel
In a similar vein, the pension payments amounted to implied representations that Mr E was entitled to the pension payments. In particular, there were no caveats on payslips that, for example, the sums paid were subject to the Scheme rules. Mr E relied on the fact that a specific pension payment would be regularly received. TPO found that the pension payments themselves amounted to an implied representation of Mr E’s entitlement to the pension payments (estoppel by representation).
Again, the idea that merely paying the pension could amount to an implied representation may surprise some readers. Should members be entitled to the defence of estoppel by representation, even where the Trustees have made no express representations? According to TPO in these circumstances, yes they can! Trustees should, therefore, carefully consider members’ available defences even if no relevant representations have been made.
| Key Point: TPO makes generous allowances for unrepresented members where trustees have failed to explore all possible defences. Trustees should, therefore, carefully consider members’ available defences. |
On the other hand, estoppel by convention is difficult to apply in the context of pensions. TPO held this did not apply here.
Limitation/Laches
In this case, the Trustees did not act promptly enough in response to the overpayment that had arisen out of the invalidated Scheme rule change. Consequently, they would have lost the right of recoupment in any event.
Additional Points for Trustees
A small portion of the overpayments were recoupable. However, the Trustees still had to enforce TPO’s decision by obtaining an order from a “competent court” in accordance with the Court of Appeal decision in CMG Pension Trustees v CGI IT UK which established that TPO was not a ”competent court”. Failure to do so without a County Court order could amount to maladministration.
In addition, the Trustees failed to communicate effectively with members regarding the circumstances giving rise to the overpayment. As a result of the inconvenience and distress caused, TPO awarded the member £1,000.
| Key Points: • Members may be entitled to a change of position defence, even when they have not spent any money. • Members may be entitled to an estoppel by representation defence, even if the trustees have not made any express representations. • It remains to be seen whether the courts would take the same view as TPO. • An order of a “competent court” is needed to enforce TPO’s decision in relation to overpayment and recoupment. • Trustees should inform members as soon as an overpayment is discovered. |