In more detail

What was this determination about?

In 2019, the Court of Appeal overturned an earlier High Court decision and found that increases to pensions made in respect of pre-1997 service from the Bic UK Pension Scheme ("Scheme") had not been validly introduced into the Scheme's governing documentation. This meant that some members had been overpaid pension over a number of years. Mr. E, who brought this particular complaint, had been overpaid for a period of 24 years and eight months, with an overpayment totalling GBP 90,934. The Pensions Ombudsman ("Ombudsman") is apparently considering four other cases relating to the Scheme and the same subject matter.

Prior to the High Court and the Court of Appeal rulings, the Trustees of the Scheme had been considering for several years whether incorrect increases had been applied; the Trustees' advisers had first queried the correct legal basis for the increases being applied in 2004, although it was not until 2011 that the employer first formally challenged the validity of the pre-1997 increases. In February 2013, affected pensioners were contacted and were advised that a discrepancy had been identified and further increases were suspended. However, overpayments continued to build up in relation to overpaid past increases, and the Ombudsman felt that the 2013 communication was poorly drafted and did not make it clear to members that overpayments may have to be recouped in the future. In early 2020, Mr. E was notified that his pension would be reduced to the "correct" level from 6 July 2020 (which he did not dispute) and the pension further reduced to recover the earlier overpayments over a period of 24 years (the same period over which the overpayments were made), which is known as 'recoupment'. The impact of the original recoupment proposal from the Trustees would have been a decrease to Mr. E's pension of over 50% (from GBP 1,552 to GBP 748 per month). Mr. E complained about the proposed recoupment plan under the Scheme's internal dispute resolution procedure.

What did the Pensions Ombudsman have to consider?

The Ombudsman had to consider whether it was fair and equitable to permit the recoupment of all of the relevant overpayments and whether the defence of "laches" was available to the member. The defence of laches could apply if the Trustees had been aware of the issue but had delayed asserting their right to reclaim the overpayments, meaning that, because of the delay, they were no longer entitled to recover them.

In determining whether it was equitable and fair for the Trustees to recoup the full amount due from the member, the Ombudsman comprehensively considered the components of, and case law relating to, two particular defences that members may raise where trustees are seeking to recover overpayments in a straight "repayment" claim (i.e., requiring a member to make an immediate payment directly back to the Trustees, not under a "recoupment" exercise where trustees are merely reducing future pension to account for earlier overpayments). These were the defences of "change of position" and "estoppel", which both require similar requirements to be met, including that the member has to be shown to have irreversibly relied, to their detriment and in good faith, on the overpayment. Although the Ombudsman noted that these two defences were not specific defences that could apply to recoupment cases, he found that the principles considered by the courts in relation to both those defences were of assistance in making a decision as to whether it was reasonable and fair to allow recoupment. Although the Ombudsman suggested that he was "borrowing" from the requirements of the two defences, he effectively applied the various tests to the facts of Mr. E's case as if they fully applied to it directly.

What was the Pensions Ombudsman's decision?

In short, the Ombudsman found that it was not fair or equitable for Mr. E to have to repay any past overpayments of pension that had built up prior to the Court of Appeal's decision in 2019.

The Ombudsman found that the requirements of a "change of position" defence were met in Mr. E's case, i.e., that Mr. E had reasonably and detrimentally changed his position in reliance on the overpayments, even after the 2013 communication was issued. The Ombudsman did not consider the 2013 member communication to be sufficiently clear, particularly in relation to the prospect of future repayment or recoupment, to put Mr. E "on notice" that his pension may be reduced in the future. Mr. E had spent his overpayments on generally improving his lifestyle and the Ombudsman decided that this was reasonable.

The Ombudsman also concluded that the separate requirements of an "estoppel" defence were present and could validly apply in Mr. E's case to prevent some of the overpayments from being repayable, on the basis that the Scheme "represented" to Mr. E that his pension was being paid at the correct level and he reasonably and detrimentally relied on those representations. Interestingly, the Ombudsman found valid representations from the Trustees in the form of payslips sent to Mr. E (and his P60s) that were not caveated or qualified as to their accuracy. He found also that the mere fact that Mr. E's pension was paid to him was an implied representation that Mr. E was entitled to that level of payment, given that the Trustees were under a legal obligation to pay the correct pension. However, the Ombudsman found that Mr. E could only rely on this particular defence until 2013 when Mr. E received the Trustees' first communication (noting that there was a distinction between the application of the two defences when it came to the relevance of the 2013 communication).

Finally, although it was academic given his finding that Mr. E could rely on a "change of position" defence until 2019, the Ombudsman also found that Mr. E also had a "laches" defence, with the Ombudsman commenting that it took the Trustees over six years to get to a decision from the High Court and that it was "just not acceptable for matters to have progressed at that speed".

Key takeaways

This was an important Ombudsman's decision for several reasons, but the key takeaways for trustees and employers are as follows:

• Although the Ombudsman has often considered whether members can rely on either or both of the "change of position" or "estoppel" defences in recoupment cases, he has now clearly confirmed that the relevant principles of each defence can effectively be applied in this type of case. 
• Despite concerns being raised by the Trustees and the employer about the potential increase in the number of overpayment cases where a successful "estoppel by representation" defence could be raised as a result of this determination, the Ombudsman has confirmed that uncaveated payslips setting out overpaid pension (and even the mere payment of pension by trustees) can constitute relevant representations on which members can reasonably rely. It will be interesting to see whether this leads in practice to fewer successful recoupment determinations before the Ombudsman. 
• Trustees should consider carefully whether the Ombudsman's normal "rule of thumb" to set overpayment recovery periods to match the periods over which the overpayments accrued can apply where this might lead to member hardship. In Mr. E's case, the Ombudsman decided that it was not fair to reduce Mr. E's pension by GBP 307 per month and reduced the repayment amount to GBP 200 per month (with further scope for reduction if the member's financial circumstances were to deteriorate). 
• Finally, trustees should be aware of the Ombudsman's comments that it is good practice for trustees to explore with members who are disputing overpayments whether a particular legal defence to repayment could apply. This should occur as part of the IDRP process before the matter reaches the Ombudsman.

A copy of the determination can be found here.