It illustrates the practical and reputational consequences of inadequate communication and highlights the importance of aligning discretionary practices with scheme rules.
Background: discretionary increases and legal reversal
The latest dispute raised by Mr and Mrs D follows the lead case of Mr E in April 2024. The original complaints result from the case of BIC UK v Burgess (2019) which concerned the decision to provide long-standing discretionary increases to pensions relating to pre-1997 service. These increases, communicated in the early 1990s, were not formally incorporated into the scheme’s rules. Although the High Court initially upheld the validity of these increases, the Court of Appeal later reversed this decision in BIC UK v Burgess (2019).
Following this judgment, the Trustees sought to recoup overpayments from Mr and Mrs D, amounting to £31,413 and £16,408 respectively, by reducing their future pension payments.
Administrative handling and member impact
From an administrative perspective, the most significant concern was the quality and clarity of the Trustee communications issued in 2013 and 2019. Although the Trustees indicated that further deductions might occur, they failed to explain the implications clearly or quantify the potential impact, particularly with regards to the overpayments that continued to build and may need to be repaid. As a result, affected pensioners, including Mr and Mrs D, continued to receive and rely on the overpaid amounts without any realistic understanding of the risk.
The Ombudsman found that Mr and Mrs D had valid change of position defences to the recovery of part of the overpayments, had acted in good faith and suffered material financial detriment. Mrs & Mrs D accepted the correction to their pension going forwards but disputed that the past overpayments should be recovered. It was determined that it was not equitable to recover past overpayments under the circumstances. In the same way as in the case of Mr E, the Ombudsman also cited Mr and Mrs D having a defence of laches due to the Trustees’ delayed recovery efforts which meant it was considered unjust to pursue repayment of sums paid over such a long period of time.
Implications for pension scheme administration
The determination reinforces the importance of ensuring that discretionary practices are properly documented and supported by scheme rules. Administrators play a critical role in:
- Identifying and flagging discretionary elements in benefits
- Supporting trustees in reviewing legacy practices for compliance
- Drafting member communications, in collaboration with advisors, that provide clarity on potential risks or future liabilities
- Ensuring that any pause or suspension of benefits is accompanied by transparent explanation and legal context
The case also underscores the need for robust audit trails and the clear separation of guaranteed vs. discretionary benefits within member records and statements.
Communications as a governance tool
Failure to communicate clearly and consistently was a central issue in this case. Trustees were found to have reserved their rights while creating the impression of reassurance. The Ombudsman concluded that this approach misled members and failed to mitigate the risk of ongoing detriment. The failure to adequately explain the situation and resolve uncertainty formed part of the reasoning behind the direction to make compensation payments of £1,000 each to Mr and Mrs D for non-financial injustice as a result of maladministration.
Conclusion
This determination highlights that the success of pension scheme governance depends not only on legal accuracy but also on the effectiveness of administration and communication. Administrators are uniquely positioned to act as both technical guardians and facilitators of transparency. Ensuring members are properly informed, particularly when legal or financial risks arise, is not just best practice. It’s essential.
Karla Bradstock, Technical & Communications Manager – Trafalgar House
