UK pension firms issued dispute resolution guidance following Court of Appeal decision 

The Pension Ombudsman (PO) recently published a factsheet (3 pages/156 KB) to assist schemes with the procedure required to recover disputed overpayments after the Court of Appeal ruled late last year that the PO is not a “competent court” for such purpose within section 91 of the Pensions Act 1995.

The Court of Appeal’s judgment means that if an overpayment is disputed by the scheme member, the scheme trustee must apply to the county court to enforce a PO determination upholding the repaying of that overpayment. Pension ligation partner Hayley Goldstone of Pinsent Masons previously described the decision as a “blow” for the PO’s enforcement powers and an “unwelcome inconvenience” for pension trustees.

Under the 1995 Act, where trustees of an occupational pension scheme have mistakenly overpaid benefits, they may be entitled to recover the payments by offsetting against future benefit payments by using the equitable “self-help” remedy of recoupment. However, where there is a dispute over the amount to be repaid, the obligation to repay must be enforceable under an order of a “competent court” or in consequence of an award by an arbitrator, neither of which the PO was held to be by the Court of Appeal. 

In response to the ruling, the Department of Work and Pensions is supporting legislative changes to formally empower the PO to bring an outstanding overpayment dispute to an end without the need for a county court order. The PO’s factsheet is intended to provide clarity over the way in which pension firms and trustees should manage overpayment disputes in the interim. In a statement, the PO said the additional step “should not prove unduly burdensome, as the role of the County Court here is to enforce the Ombudsman’s determination, and not reconsider the merits of the complaint.”

The factsheet contains guidance on dealing with overpayment disputes at the internal dispute resolution procedure (IDRP) stage. Parties are strongly encouraged to ensure all possible defences to the recovery of overpayments are raised and properly dealt with during IDRP. Parties are urged by the PO to “turn their minds to what type of schedule of recoupment can be achieved and directed by the PO” if defences raised in the IDRP are unsuccessful in remedying the dispute. 

It is anticipated that in most cases an agreement will be reached before or during the ombudsman process, meaning there is no longer a dispute to be formally determined by the PO. However, parties can request a determination if they wish on whether the scheme is entitled at law to recoup. Parties are then permitted to appeal the PO’s determination to the High Court. 

Schemes will then face a practical problem following the “competent court” judgement, according to the factsheet. This is because to give effect to a disputed recoupment then determined by the PO, schemes must now take an additional step to obtain an order from a county court enforcing the PO’s determination. The PO has clarified however that the county court will not revise the merits of the complaint – for example, the court will not re-hear the case as the PO determination has already decided the case – but will instead authorise the pension scheme to commence deduction of the overpayment from the member’s future pension payments based on a schedule of repayment that the PO will append to the determination to facilitate this process. 

The PO said: “The role of the county court is to authorise the pension scheme to commence deduction of the overpayments from the member’s future pension payments in accordance with the designated schedule” and it will “provide a certified copy of the Determination for the County Court” who will then “deal with the matter on the papers”  The PO has already issued its first determination under the process with such a designated schedule.

Liam Fitzgerald, pension litigation expert of Pinsent Masons commented that “it is helpful to see that the DWP is intending to legislate to get the county court step removed and this cannot come too soon.  In the interim, it is very helpful to see that the PO has practically considered how to speed the process up under its determination process.”