Defined BenefitApr 26 2018

Court ruling reignites fight to clawback overpaid pensions

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Court ruling reignites fight to clawback overpaid pensions

A recent ruling from the High Court, which determines there is no time limitation for defined benefit (DB) pension schemes to recover overpaid benefits to its members, has left savers facing uncertainty.

Last week, the High Court ruled in Burgess and others vs BIC UK, that there is no statutory limitation period in which to recover pension overpayments, as long as this is done by adjusting future payments.

However, this contradicts a previous High Court ruling from 2016, in the case of Webber vs Department of Education, which said a scheme could not claim back overpayments made more than six years before a recognised cut-off date.

This means members that have been overpaid pensions cannot be sure on what will be the value by which their pension will diminish, if the overpayment occurred for more than six years.

According to Peter Murphy, head of pensions and investment litigation at law firm Sackers, people trying to deal with overpayments will have to recognise that there are two conflicting decisions and they will need to somehow find a practical solution despite that legal uncertainty.

Mr Murphy explained it is not uncommon for pension scheme trustees to get the pension calculations wrong and end up overpaying the members.

He said: "It is not unheard of that these mistakes in overpayments might continue for many years, without being picked up.

"When they do pick up the error, the trustees of the scheme have an obligation to try to recover the amount that they have mistakenly overpaid, and the member is not automatically entitled to keep the amount that they were wrongly provided.

"There are certain circumstances where the member might have a valid defence, so they might be able to keep some or all of the overpaid amounts."

One example of overpayments is that as many as 43,600 pensioners could have to give back up to £50,000 already received from their company pensions, as schemes update their contracting out data.

Defined benefit pension schemes have until October 2018 to check their records against the ones being held by HM Revenue & Customs (HMRC), after discrepancies were found in 2016, leading to suggestions people may have received erroneous state pension payments.

Mr Murphy added one of the key factors that governs how much can be recovered is time limits, and there was a period of six years that was applied to these situations, due to the previous court ruling.

He said: "We are now in a very unsatisfactory situation, where we don't have a clear ruling by the High Court as to what is the right answer."

The Pension Ombudsman is also facing uncertainty, since it is normally called upon in deciding on complaints from scheme members on this matter.

Mr Murphy said: "It is possible that they decide to apply one of the [two High Court] decisions, but whoever gets the bad outcome as a result of that might seek to appeal it."

One of the options for the ombudsman is to refer this issue to the High Court for another ruling.

Mr Murphy said: "Only the Court of Appeal can give ultimate certainty, but another decision of the High Court, if it is an appeal of The Pension Ombudsman, might give practical certainty."

A spokesperson at the ombudsman said: "We are considering the implications of this judgment and whether it will be appealed.  We will issue a statement once this is known."

maria.espadinha@ft.com