UK: Pension Overpayments And The Saga Of 'David v Goliath'

Last Updated: 12 July 2013
Article by Justin McGilloway

Pension overpayments and mistakes in calculating members' benefits happen. This is a fact of life. No administrative system is fool proof in preventing such errors and in dealing with such cases, the normal basis, applied by the Courts is that individuals are only entitled to their correct benefits. Therefore in the majority of cases, mistakes are rectified and overpayments recouped from the recipient.

Keeping the overpayment?

However, if because of the mistake or overpayment, the recipient has 'changed their position', redress should be considered to make good the loss. The term 'change of position' means that because of the error irreversible decisions or expenditure have been entered into, which now means the recipient is worse off. Change of position is not just limited to specific items of expenditure but can include improving one's lifestyle. The 'change of position' argument or for that matter asserting 'estoppel' (a legal principle that bars a party from denying or alleging a certain fact owing to that party's previous conduct) are notoriously difficult to establish. In addition, they tend to succeed only where the overpayment has been irretrievably spent, which in turn, rather perversely, penalises the more prudent individuals.

Pensions Ombudsman complaint - McNicholas

 In 2010, Natalie McNicholas had £311,500 paid into her pension scheme with Legal & General when she received a share of her husband's retirement savings as part of their divorce settlement. In addition, Mrs McNicholas received 70% of net assets under a consent order which also stated that one of their children had disabilities and might require support throughout his life.

In January 2011, Scottish Widows, the insurance company that ran Mr McNicholas' pension, contacted Mrs McNicholas and said that it had incorrectly calculated Mr Nicholas' pension and there had therefore been an overpayment of £97,626. Lawyers representing Scottish Widows then wrote to Mrs McNicholas in November 2011 to seek recovery of the overpayment claiming that it had been paid by mistake and had unjustly enriched her. They said that if she did not repay the money, court proceedings would be commenced against her and Legal & General.

At the end of November 2011, Mrs McNicholas instructed Wedlake Bell's Pensions & Employee Benefits Team to advise her. The obvious first step was to take action that would prevent this case going through the Court system which would mean legal fees and the inevitable stress of fighting an organisation much better resourced than a newly divorced mother of three! To this end, Wedlake Bell advised Mrs McNicholas to submit a complaint to the Pensions Ombudsman effectively taking the matter out of the Court's jurisdiction until the Ombudsman reaches his determination. As part of this initial process, Scottish Widows also agreed to contribute £2000 to her legal costs.

In her complaint to the Ombudsman, Mrs McNicholas complained that she should not have to repay the £97,626 overpayment as it was not due to any error on her part. The mistake was Scottish Widows' and had been caused by its 'maladministration'. The settlement she agreed with her former husband was driven by her current and future needs, and in particular the needs of one of their children. She had no reason to think that the sums quoted by Scottish Widows were wrong and had relied on the information when negotiating the divorce settlement with her former husband. Wedlake Bell's Family team also advised that the consent order and financial terms of her divorce could not be revisited.  The fact that the pension funds had already been allocated to provide professional care for their disabled child after her death also meant that a 'change of position' argument was fairly strong.

Determination – May 2013

The Ombudsman found in favour of Mrs McNicholas stating that: "There is no doubt that the overpayment arose through maladministration by Scottish Widows. Had maladministration not occurred, Mrs McNicholas would have known the true value of the pension and would have been able to negotiate either a larger share of her husband's correct pension or a more favourable division of other assets".

The Ombudsman also considered the elements of estoppel concluding that Mrs McNicholas had irrevocably altered her legal position in reliance of the representation made, to her detriment, losing the chance to pursue other financial relief. The financial settlement was agreed on the basis that it provided Mrs McNicholas with a fair share of the matrimonial assets and appropriate provision for the future. If she were required to repay the money she would be under-resourced for her own and her family's future needs.

The Ombudsman also held that Scottish Widows' original quote also amounted to negligent misstatement. Scottish Widows owed a duty of care to both Mrs McNicholas and her husband as it knew the purpose for which the information was given and that both would rely on it. It breached this duty of care by failing to provide the correct information. Mrs McNicholas acted on this to her detriment and it was reasonably foreseeable that she would do so.

The Ombudsman also said that the overpayment arose through Scottish Widow's maladministration, for which she could be entitled to compensation. However, to require her to repay, and then direct Scottish Widows to pay compensation, would be an unnecessarily cumbersome way to resolve matters. He ordered the insurer not to take any steps to recover the overpayment from Mrs McNicholas and to pay her £250 "in respect of the distress and anxiety caused".

Comment

  • The Ombudsman has seen clearly that the error was Scottish Widows. The 'change of position' argument was put to good use but the distinguishing feature of this case from other overpayment cases was that the money was inextricably woven into divorce settlement calculations. In this particular case, the divorce settlement could not be revisited and both sides had every reason to assume the information given by Scottish Widows and the money paid over were accurately calculated;
  • The other point to note in this case was the usefulness of the Pensions Ombudsman as a dispute resolution forum. This case was never suitable for protracted and expensive litigation. In fact, Scottish Widows could have made its own complaint to the Ombudsman. The threat of legal proceedings may have been a tactic to force Mrs McNicholas into paying over the money but in this instance it was wholly unnecessary one that unfortunately caused great distress and inconvenience; and 
  • It's concerning to think that many people in Mrs McNicholas' position simply buckle to the pressure of threatened Court proceedings. Preliminary legal advice (without breaking the bank!) can often be a sensible investment. It allows individuals to properly assess the merits of a case and avoid situations where individuals effectively bow to the pressure created by the threat of Court proceedings. More often than not, litigation is wholly unnecessary.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Topics
 
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions