The recent High Court decision in Webber v Department of Education highlights some of the duties and responsibilities of trustees where an overpayment of benefits has been made to a scheme member. It also clarifies the time period over which overpayments can be recovered. The case concerned the Teachers' Pension Scheme, which is managed by Teachers' Pensions (TP) rather than trustees, but similar principles will apply in relation to trust-based pension schemes.
The starting point is that trustees generally have a duty to recover any overpayments. The member has several possible defences, the most commonly pleaded one being "change of position". This allows the member to keep the overpayment if their position has so changed as a result of the overpayment that it would be inequitable to require him to repay the money. The availability of the defence depends very much on the facts of the case. In Webber, the judge held that as the member appreciated that the payment he was receiving might be an overpayment, and turned a blind eye to it (e.g. he could have made a simple inquiry to clarify the position but did not do so), he could not rely on the change of position defence.
The second main issue in Webber was the period over which TP could recover the overpayments. Mr Webber had taken early retirement in 1997 but his pension should have been reduced following his return to work in 2001. The trustees knew that Mr Webber had returned to work and that there would definitely be an overpayment if he continued in his employment for a set period of time. Once that time had elapsed, they did not inquire whether or not he was still in employment, resulting in the overpayment. In these circumstances, under the terms of the Limitation Act 1980, TP could only recover payments going back six years from when they knew or ought with reasonable diligence to have known about the overpayments (i.e. six years from 2001). This means that Mr Webber could keep overpayments made to him from 2007 to 2009, when the overpayments were actually identified and stopped.
Where trustees identify that an overpayment has been made, the Pensions Ombudsman expects them to communicate this sensitively to the member, and allow a reasonable period over which repayments or deductions from ongoing pensions can be made. The general rule of thumb is to aim to recover the overpayments over a similar period as the period for which the mistake had gone undetected. Trustees should always take account of any defences raised by the member, the member's ability to repay and the effect any decision not to recover might have on other scheme members.
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.