What was this case about and what was decided?

We reported last year on the High Court decision in CMG, which was a case relating to the application of the pension scheme's rules and the resulting treatment of both overpayments and underpayments. One of the decisions made by the High Court was that, for the purposes of Section 91(6) of the Pensions Act 1995, the Pensions Ombudsman was not a "competent court," and so a further County Court order would be required following a Pensions Ombudsman determination permitting an overpayment to be recouped. The original parties to the case did not wish to appeal the High Court's decision, but the Pensions Ombudsman successfully sought to appeal this element of the case, and it was agreed that it would pay the Trustee's reasonable costs to take part in the appeal.

For background, Section 91(6) deals with "set-offs" against members' future pension benefits and the conditions under which such exercises can be carried out by trustees following the discovery of an overpayment. Whilst there has always been some doubt as to whether a recoupment exercise to recover overpayments via deductions from future pension installments would fall within the definition of a "set off" and so come within the scope of Section 91, this was accepted in the CMG High Court case. The Court of Appeal decided that a recoupment exercise would squarely fit within the provisions of Section 91, and so would be subject to its requirements.

One of the conditions of Section 91(6) is that where there is a "dispute" as to the "amount" of a set-off, the set-off cannot be exercised until the obligation has become "enforceable under an order of a competent court." There had been some doubt following an earlier High Court case as to whether the Pensions Ombudsman was a "competent court" for these purposes, but the Ombudsman took the view that it was a competent court, and so no further court order was needed following a determination by the Ombudsman. The Pensions Ombudsman strongly argued this view at the Court of Appeal.

However, the Court of Appeal agreed with the High Court, for various reasons, that the Ombudsman was not a "competent court" for the purposes of Section 91(6) of the Pensions Act 1995, meaning that a further court order from the County Court would be required to proceed with a recoupment exercise. However, the Court of Appeal did seek to place some limitations on what trustees would have to do in practice to proceed with a recoupment exercise following a successful Ombudsman determination. For example, it found that the County Court could not revisit the substance of the dispute agreed by the Pensions Ombudsman, and it would merely enforce the determination and directions of the Ombudsman, setting out the amount of the overpayment and specifying the amounts to be recouped over the specified period at a specified rate. The County Court's function was described by the main judge setting out the Court of Appeal's judgment as "administrative."

Continuing areas of uncertainty

Whilst there is now more procedural certainty than there had been prior to the decision about how an overpayment dispute and a proposed recoupment exercise considered by the Pensions Ombudsman should be managed, there continues to be uncertainty in a number of related areas.

• Firstly, it isn't clear what should happen in the case of a dispute which does not reach the Pensions Ombudsman. The Court of Appeal was clear about what should happen when a dispute reaches the Pensions Ombudsman and is decided in the trustees' favour. However, it is much less clear what should happen where some form of dispute does not reach the Ombudsman's office (referrals to the Ombudsman can only be made by members and cannot be made by trustees). Should trustees in this situation conclude there is no "dispute" if the matter does not proceed to the Pensions Ombudsman, for example, if a member is unwilling to escalate a complaint?
• Similarly and more generally, there is still little clarity from the courts on what reasonably could be considered a "dispute" under Section 91(6). For instance, should a cautious trustee conclude that an informal complaint from a member about the principle of having deductions made from his or her pension, without any substantive denial of the existence of the overpayment or its amount or proposed deduction rate, halt a recoupment exercise?

Further judicial or regulatory commentary may be provided in this area in the future, particularly if the current focus on rectifying incorrect benefits continues as part of wider pension projects. However, the continuing uncertainties in this area mean trustees need to act carefully if they wish to proceed with a recoupment process where a member complaint is raised.

Please speak to your usual contact at Baker McKenzie if you would like to discuss the implications of this case further.

A copy of the case can be found here.