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What's new at the Pensions Ombudsman

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In this update we cover a range of different issues in relation to the Pension Ombudsman (TPO), including:
• A new government consultation on TPO’s powers to resolve both pension complaints and disputes;
• The introduction of fixed amounts for non-financial injustice awards; and 
• A reminder of key issues for trustees faced with overpayments, in light of recent case law.

1. The consultation

The Department for Work and Pensions recently held a consultation which focuses on how to widen TPO’s jurisdiction and expand its dispute resolution powers. 

It is proposing to:
• Provide an early resolution service which would include resolution of disputes before a determination;
• Offer TPO the potential to make directions that are legally binding at the end of an early resolution process;
• Allow TPO to mediate and resolve complaints and disputes;
• Allow TPO to accept a complaint or dispute before an occupational pension scheme's internal dispute resolution procedure (IDRP) has commenced;
• Allow employers to be able to make complaints or refer disputes on their own behalf to TPO against the person responsible for the management of the scheme; and
• Make changes in relation to signposting to TPO.

The consultation sought to establish how the above measures should be legislated for.

These proposals follow on from the move of dispute resolution powers from the Pension Advisory Service into TPO in April 2018. 

It may be difficult to determine how these proposals would interact with the IDRP requirements. Currently, most schemes are required to have an IDRP that deals with complaints between the scheme trustees or managers and eligible complainants about specific matters relating to the scheme. A member cannot refer a complaint or dispute to TPO unless it has gone through the scheme’s IDRP. 

If TPO's early resolution process gains traction and resolves queries at an early stage, trustees and employers risk losing the ability to resolve issues within the scheme itself. At present, only TPO's determinations after investigation are final and binding. If early resolution becomes binding, this would inevitably lead to a need to respond quickly and in more detail at an earlier stage to make sure that the right outcome is reached.

The consultation closed on 18 January 2019. Trustees and providers await the outcome.

2. Redress for non-financial injustice

TPO recently revised its guidance about redress for applicants for non-financial injustice caused by maladministration. 

TPO introduced fixed amounts for non-financial injustice awards, based on the objective level of inconvenience and distress suffered by an applicant. The awards range from no financial award (for the nominal category) to more than £2,000 for exceptional cases, taking into account the individual circumstances of the case. 

Factors that TPO will consider include whether there were excessive delays that were extensive or readily avoidable by those responsible for handling the complaint, whether the inconvenience was on a single or number of occasions and how the respondent handled the complaint. 

Specifically, the awards will be as follows:

The level of award for severe cases has been increased to distinguish between serious and severe cases. TPO also maintains the power to make a recommendation that the respondent offers the applicant a formal apology. TPO’s awards are intended to remedy injustice genuinely suffered, rather than to penalise a respondent.

These changes should be a welcome change in the pensions sector as the fixed amounts enhance transparency and manage expectations for all parties involved.

3. Overpayments

There are a number of key issues trustees should consider when faced with an overpayment issue.

For the purpose of this article, when we refer to overpayments we are talking about a member or a beneficiary being paid more than they are entitled to under the scheme rules or under legislation. There are two primary kinds of overpayment:

• On-going overpayments: where the member or beneficiary has been continually overpaid; and
• One-off payments: where a lump sum has been paid that is higher than it should have been.

What are trustees' duties on overpayments?

The starting point is always that the member or beneficiary is only entitled to the level of benefit set out in the scheme's rules or under legislation. This means that trustees have a duty to correct the position to prevent further overpayments going forward. The issue with this is that members or beneficiaries are likely to have become used to receiving a larger pension payment than they were entitled to. It is for this reason that trustees should always give thought to the timeframe for correction. 

Many factors will be relevant to the approach trustees should take, including the level of overpayments and the member or beneficiary's personal circumstances, but in most cases it may be appropriate to permit the member or beneficiary a period of notice of at least a month to allow them to adjust to what will be a new (albeit correct) level of pension provision.  

Trustees also have a duty to gather back in assets wrongly paid from the scheme. This means they will need to take steps to recover any previous overpayments, unless they have taken a well-documented and justifiable decision not to recover. In considering their approach to recovery, trustees should consider all relevant factors, including whether the scheme rules or legislation contain any specific provisions on overpayment; how long the overpayments have been made; who is at fault for the overpayments; whether the member knew or should reasonably have known he or she was being overpaid; and whether the member or beneficiary has any defence to recovery.

Trustees' options for recovery

In the absence of clear guidance in the scheme's rules or governing legislation, the options for recovery are recoupment and repayment.

Recoupment is the simplest option. This is in essence a 'self-help' remedy, whereby the trustees recover the overpaid sums by making deductions from future payments to members. While this is the simplest means of recovery, there are nonetheless two important considerations for trustees. First, it must not be unfair to make the adjustments to pension payments. Second, the rate of recoupment must not be unduly harsh such that it might be considered 'inequitable'. It is often thought that, where possible, it is best for recoupment to take place over the same or a similar period as the period of the overpayments. TPO has made it clear that a sensitive approach is expected.

The alternative for trustees is repayment (or restitution) by the member. In circumstances where there has been an overpayment because of a factual or legal mistake, this involves directly asking members or beneficiaries to return their overpayments. While many members recognise the need to repay, some are understandably reluctant to pay back money they have been receiving because of somebody else's mistake. This can make repayment a more complicated way forward. There are also reputational and financial issues to consider if members or beneficiaries refuse to repay, as court proceedings would then be required to facilitate recovery.

Limitations on recovery

One of the most confusing aspects of the law on overpayments is limitation (that is, the rules on the point at which recovery of overpayments becomes time-barred). These rules have been helpfully clarified in the two cases - Webber v Department for Education and Burgess v BIC - and it is now clear that the rules on limitation differ for recoupment and repayment (though the judgment in Burgess v BIC is subject to an appeal in the Court of Appeal later in 2019).

With recoupment, there is theoretically no time limit on how far back trustees can look for recovery of overpayments (although recovery must always be equitable).

With repayment, the starting point is that there is usually a six-year time period from the date of the overpayment within which the trustees can make recovery. If the overpayment was caused by a mistake, then the six year period only begins when the mistake could with reasonable due diligence have been discovered. That means if a mistake was made longer than six years ago, but could not have reasonably been discovered until five years ago, repayment of the overpayment would still be an option for the trustees.

Where repayment is disputed, overpayments can be reclaimed in the six year period prior to TPO receiving the trustees' response to the member's complaint. For the member, stopping the clock is important, as this maximises the number of mistaken overpayments (and mistaken overpayments reasonably discovered) in the six year period which the trustees will then legally be entitled to seek repayment of. He or she will therefore want to refer the matter promptly to TPO.

Change in position defence 

When money is paid out to someone by mistake, the principal claim to recover that money from the recipient is a claim in 'unjust enrichment'. The basic requirements for a claim in unjust enrichment are that the defendant has benefitted or been enriched at the expense of the claimant and the enrichment was unjust. 

When an unjust enrichment claim is brought to recover money paid by mistake there is no requirement to show that the defendant has acted wrongfully for the claim to succeed. It is enough that the defendant has received a benefit that they ought not to have. However, the defendant may have a defence to the claim, and a ‘change in position’ defence is the most common. 
The basic principle behind the defence is that if the defendant received the benefit in good faith and, as a result of receiving the benefit, their position has changed detrimentally, then they are not required to repay the benefit. In cases involving mistaken payments a detrimental change in position includes when, as a result of receiving the payment, the defendant increases their spending and uses the money. The rationale for the defence is that the defendant received the money in good faith and would not have spent it had they known that the payment was made by mistake, and consequently they would be worse-off if they had to repay it. 

It follows from this rationale that the spending does not count if the money was used to pay off debts. A debt must always be repaid at some point, and so a defendant is not worse-off if they have to repay money used to pay debts. One liability, the loan, has simply been swapped for another, the liability to the claimant. However, the defendant will be worse off if the repaid loan had better terms than the liability to the claimant – for example, if the loan had an unusually low interest rate, and in repaying the debt the defendant has lost the opportunity to borrow at that rate. If the defendant’s position has changed as a result of paying off the debt – for example, if they've given up a job following payment of the loan – then they may also still have a defence. 

The defendant will also be barred from relying on a change of position defence if they did not receive the payment in good faith. For example, if a defendant consciously changes their position despite knowing that the payment was made by mistake, then they cannot use the defence. This potentially extends to cases where the defendant has good reason to suspect that the payment was made by mistake.

Final thoughts

To prevent further problems, trustees need to remain calm and avoid knee-jerk reactions, prepare a strategy for dealing with the issue promptly, communicate actively but clearly with members or beneficiaries (taking account of how communications will be received), and take advice where necessary to ensure the approach being taken would not attract criticism from TPO or the High Court. 

It is expected that trustees will be firm but fair with their members, but a cost-benefit analysis should always be considered and the right way forward will always depend on the wider circumstances of the case and the wider extent of the overpayment issue.

How can Burges Salmon help?
If you would like to discuss any of the points raised in this article in more detail, please contact Clive Pugh ( or Suzanne Padmore (