Are pensions trustees facing another hurdle for recoupment?

Recovering overpaid benefits from members can be a tricky issue for pension trustees.

There are several legal issues (not to mention reputational difficulties) to consider if they want to seek direct repayment. Where possible, most trustees opt instead to ‘recoup’ (i.e. recover) overpayments from the member’s future pension instalments.

Legislation permits trustees to do this without the member’s permission. However, members are protected if they dispute the amount being recovered (or indeed the rate of recovery itself). In such circumstances, trustees are required to obtain an “order of a competent court” before the recoupment can proceed.

Up until relatively recently, where a member was notified of a planned recoupment and disputed it by making a claim to the Pensions Ombudsman, many trustees proceeded on the basis that an Ombudsman decision in their favour would constitute an “order of a competent court”, complying with the legislative requirements and allowing the recoupment to proceed.

What changed?

In the High Court case of CMG Pensions Trustees Limited v CGI IT UK Limited it was determined that the Ombudsman was not a competent court for the purposes of recoupment. This could have had serious consequences for both the Ombudsman’s remit and trustees’ approach to recovering overpayments.

If trustees were required to obtain a court order in a formal court action to recoup overpayments, an Ombudsman determination in their favour would lose its value. Instead, they might be encouraged to seek an order directly from the courts immediately and bypass the Ombudsman entirely. Understandably, the Ombudsman appealed the decision to the Court of Appeal.

The outcome

While the Court of Appeal confirmed that an Ombudsman decision was not an order of a competent court, it did reject some of the more severe implications of the earlier decision.

It noted that an Ombudsman decision on recoupment was binding on the parties involved and that obtaining a court order to give effect to such a decision could be a purely administrative step as part of a court’s enforcement process (provided the decision was clear as to the terms of the recoupment).

Thankfully, the Court of Appeal did not agree with the submission that obtaining an order in line with an Ombudsman decision would require adjudication as part of a formal court action.

There remains a possibility of further appeal. However, for now, the outcome of the Court of Appeal decision is that trustees will need to comply with an additional procedural step where recoupment is disputed and the Ombudsman decides in their favour. This will add some cost and time delay for impacted trustees but nothing like the cost and time delay arising from a full court action.

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