Court of Appeal adds additional hurdle to pension trustees recouping payments

The judgment means that if a pension overpayment is disputed by the member, trustees must apply to the county court to enforce a PO determination upholding the overpayment.

Pensions litigation expert Hayley Goldstone of Pinsent Masons described the decision as a “blow” to the PO’s enforcement powers and an “unwelcome inconvenience” for pension trustees.

“Following the decision, it’s not enough for the pensions ombudsman just to determine the amount of an overpayment and rule that it can be recouped. From now on, pension trustees will also have to make an enforcement application to the county court. Only then can they deduct the appropriate amount from the relevant member’s benefits,” she said.

“Whilst this adds time and further cost to the process, hopefully the ombudsman will set out the amount of the overpayment and the frequency of deductions to smooth the enforcement process,” she added.

Under the 1995 Pensions Act, where the trustees of an occupational pension scheme have mistakenly overpaid benefits, they may be entitled to recover the overpayment by offsetting against future benefit payments using the equitable 'self-help' remedy of recoupment. However, if there is a dispute regarding the amount to be repaid, section 91(6) of the Act provides that the set-off cannot be exercised unless the obligation to repay has become enforceable under an order of a “competent court” or in consequence of an award of an arbitrator.

The appeal concerned whether the PO is ‘a competent court’ for the purposes of section 91(6). It relates to a High Court case between CMG Pension Trustees Ltd and CGI IT UK Ltd, which considered the trustees’ ability to recoup overpaid benefits by reducing future pension instalments, among other issues. The High Court judge found that the PO is not a competent court for these purposes. The PO appealed on that point before the Court of Appeal.

Although the Court of Appeal decided that the PO is not a competent court for the purpose of recouping overpayments, it also clarified that “enforcement in the county court is an administrative matter and is to be carried out by a court officer; and there is no requirement to commence an action in the county court or for that court to consider the merits of the matter”. If the overpayment is not disputed by the member, no order is required.

Prior to the Court of Appeal decision, a PO factsheet published in April 2019 claimed that it was a competent court in these circumstances, giving several reasons. It stated that the PO is “judicial” and its determinations are “orders or judgments” and “enforceable” as they bring a dispute to an end, meaning they are final and binding.

Following the judgment, the factsheet on this point had been removed by the PO from its website. The ombudsman has issued a statement saying that it “has seen the Court of Appeal judgment in relation to the ‘competent court’ point and is currently reviewing its position”. It added that an update will be provided shortly.