In the ever-evolving landscape surrounding pension scheme overpayments, two recent decisions have shed light on crucial questions, bringing clarity to the intricate web of regulations and disputes surrounding overpayments. This article navigates through two recent cases, and focuses on the implications for trustees and members in resolving overpayment disputes.
1. Pensions Ombudsman v CMG Pension Trustees Ltd & CGI IT UK: Court of Appeal finds TPO is not a ‘competent court’
In a recent decision, the Court of Appeal, addressed a crucial question in pension law: Is the TPO considered a ‘competent court’ for the purposes of disputes regarding a trustee’s right of recoupment for overpayments under section 91 of the Pensions Act 1995 (“PA 1995“)?
The case concerned the DB section of the CMG UK Pension Scheme. Errors in the administration led to underpaid benefits, discovered in 2009. The trustees rectified the issue by making arrears payments to members. However, a dispute arose over whether rule 5.11 of the rules of the CMG UK Pension Scheme, stating that unclaimed benefits within six years would be forfeited, restricted the period for arrears.
In the first instance, the High Court ruled in favour of the employer, holding that rule 5.11 was a forfeiture clause and that recoupment could occur, subject to section 91(6) requirements. The court also determined that TPO was not a ‘competent court’ for enforcing recoupment orders.
TPO appealed and the Court of Appeal dismissed the appeal. The court held that TPO, as per statutory interpretation, was not a ‘competent court’ under PA 1995, section 91(6). Accordingly, an order from the County Court was also required in disputed recoupment cases.
Several reasons supported this conclusion, including the broad jurisdiction of TPO, its one-sided jurisdiction in disputes referred by members, and the clear legislative distinction between ‘competent court’ in PA 1995 and the County Court in PSA 1993.
Despite TPO not being a ‘competent court,’ the court clarified that TPO could make determinations and directions on overpayment and then the determination could be enforced once the County Court had as an administrative matter made a declaration to that effect, thereby eliminating the need for separate action or consideration of the merits of each case in the County Court.
Key point / takeaway: The Court of Appeal’s decision clarifies that while TPO is not a ‘competent court’ for enforcing recoupment orders, it possesses the authority to make determinations and directions on overpayment and recoupment, streamlining the resolution process within the legal and regulatory framework. The administrative need for the County Court’s involvement is an extra hurdle which hopefully in time will disappear..
2. TPO Decision on overpayments: Teachers’ Pension Scheme
In a case involving the recovery of overpayments by the Teacher’s Pension Scheme, Mrs S received a widow’s pension from 1995 until 2016.
Mrs S remarried in 2004 and, under the terms of the scheme, her pension should have ceased at that point. However, Mrs S’s pension continued to be paid to her until she informed the scheme administrator of her remarriage in 2016. In response to the administrator’s request for repayment, Mrs S claimed that she was unaware that her remarriage would trigger the termination of her pension and that the administrator had failed to communicate with her until 2014.
Following a referral to TPO, the Deputy Pensions Ombudsman (“DPO“) found that Mrs S was responsible for repayment of the overpaid pension unless one of the legal defences against recovery applied:
- Change of Position: the DPO rejected this defence because Mrs S had received annual newsletters informing of the need to notify the administrator if remarriage had occurred. The DPO considered it unlikely that Mrs S had disposed of all the newsletters without reading a single one.
- Limitation: applying s32 of the Limitation Act 1980 (where limitation periods are delayed in cases of mistake), the DPO reasoned the administrator acted reasonably by relying on newsletters and set the beginning of the limitation period at Mrs S’s remarriage disclosure in 2016 rather than at the beginning of the overpayments. The claim was not, therefore, excluded by limitation.
While the defences failed, the DPO rejected the administrator’s argument that its requirement for the overpayment to be repaid immediately was in line with HM Treasury Guidance. Instead, the DPO emphasised that each case should be considered on its own merits and, in not doing so, the administrator had not properly exercised its discretion, nor come to the correct decision.
As a result, the DPO instructed the administrator to instead set out a reasonable recovery period, suggesting it should align with the overpayment period unless Mrs S’s financial situation required adjustments.
Key point / takeaway: In the Teachers’ Pension Scheme case, the DPO emphasised the importance of considering individual circumstances in overpayment disputes, rejecting standard approaches, and instructing administrators to establish a reasonable recovery period tailored to the specific case rather than enforcing immediate payment.
WB Comment
The decision of the Court of Appeal in TPO v CMG Pension Trustees Ltd & CGI IT UK clarifies the role of TPO in disputes over trustee recoupment for overpayments. While not considered a ‘competent court,’ TPO can still play a pivotal role in resolving overpayment disputes. Trustees and members should be aware of the avenues available for enforcing recoupment orders, ensuring a smoother resolution process in cases of benefit overpayment disputes within pension schemes.
The case also needs to be seen in its wider context.. When benefits have been overpaid, trustees of occupational pension schemes may seek recoupment through set-off, as provided by PA 1995, section 91(5). Compliance with the requirements outlined in section 91(6), including providing a certificate showing the proposed recoupment, is crucial. However, if a dispute arises regarding the recoupment amount which is resolved by the TPO in the trustees’ favour, the trustees must as an administrative matter obtain an order from the County Court to enforce it.
Whilst TPO’s recent determination concerning the Teachers’ Pension Scheme does not introduce any new concepts, it serves as a reminder to administrators about the significance of newsletters for relaying information to members, and likewise to members that they should think twice before discarding such information.