The Pensions Ombudsman has ordered the trustees of the Aecom Group Pension Scheme to repay recoupments they had made for a disputed pension overpayment because they had not obtained an order from a ‘competent court’.  

Past overpayments in disputed cases present a headache for trustees since the Court of Appeal ruled that TPO is not a competent court for such cases, but the government is supporting legislation that would give TPO the power to do so, mallowstreet understands. 

The determination is the first on a disputed overpayment since the court ruled in 2022, in CMG Pensions Trustees Limited v CGI IT UK Limited, that the Pensions Ombudsman is not a ‘competent court’ for ordering the recoupment of pensions where there is a dispute.
   

   

The ruling means trustees now need to jump through the hoop of obtaining an order from a county court after an ombudsman determination where an overpayment is in dispute and could invalidate past recoupments that were made without such an order. 

In the first such case since the CMG ruling, pensions ombudsman Dominic Harris has determined that the pension scheme for infrastructure consultancy Aecom must repay money they deducted from a member’s pension.  

Mr Y was mistakenly given an unreduced pension from age 60 instead of age 65 since 2018. This resulted in an overpayment of £15,924.73 which the trustees sought to recover. They offered to reconsider doing so if Mr Y could prove financial hardship by disclosing his financial affairs, which he refused. 

Mr Y disputed the trustees’ right to reduce his pension from 2018, citing reassurances from former administrators KPMG that their pension calculations were correct. He said he had phoned the firm several times, but the ombudsman found he should have queried the figure more. 

The scheme’s lawyers later advised the trustees that they could begin to recoup the overpaid pension, arguing that s91 of the Pension Schemes Act 1995 – which prevents equitable recoupment without an order from a competent court where the overpayment is being disputed – did not apply. They also argued that if it did apply, Mr Y was disputing his entitlement to a particular level of benefit, rather than the amount being recouped. 

However, Harris determined that the trustees were in breach of s91 and in breach of trust by trying to recover the disputed overpayment without an order of a competent court, “which, at present, cannot be provided by this determination”.  

He ordered the trustees to repay Mr Y, up to the date of his determination. He added that this does not preclude the trustee from recovering the money from future payments, so long as the approach adopted is not “inequitable” and there is a court order. After having been repaid, Mr Y will now see his annual pension reduced by £306.25 a month once the trustees have the relevant order, minus any compensation from KPMG. 

Harris warned trustees that since the ruling in CMG, “generally the deduction of overpayments by recouping them from future pension payments where the amount or period of recovery is disputed is likely to amount to breach of law and maladministration” if there is no order of a competent court. Maladministration generally comes with compensation for the wronged party. 

But things could change again in future. The decision in CMG that TPO is not a competent court has not been accepted willingly by the Pensions Ombudsman, which said in December it was “disappointed with the recent Court of Appeal ruling”. 

“TPO was granted powers to handle overpayment disputes and determine the terms of overpayment recovery by parliament, with final binding determinations being subject only to an appeal on a point of law,” it said. 

“In response to the ruling, [the Department for Work and Pensions] is supporting legislative changes to formally empower TPO to bring an outstanding overpayment dispute to an end without the need for a County Court order,” it added. 

In the meantime, TPO has produced a factsheet for schemes dealing with recovery in overpayment cases. 

For trustees worrying about past recoupment cases, the key will be if there was any dispute about the overpayment, says Victoria Thompson-Hill, a knowledge lawyer at Baker McKenzie. 

However, “even following CMG, there is still some debate about what might constitute a 'dispute' as to the amount of the overpayment; the ombudsman tends to take a wide view on what this means... but there are still open questions about the application of the term”, she warns.  

There is also a lack of clarity on whether a dispute can be resolved without the involvement of the ombudsman, so that s91(6) would not be relevant.  

“These are all questions that trustees will have to grapple with” when it comes to past recoupment exercises, she notes, and which they might need to discuss with their legal advisers.

After the ombudsman’s determination in Aecom, trustees might be wondering if they will need to go through all of their past recoupment cases to see if they stand. 

“If trustees went ahead with a recoupment exercise where there was a clear ongoing dispute as to the amount of the overpayment, involving the ombudsman, then the trustees may have to revisit such exercises,” argues Thompson-Hill. 

However, there is no consensus. Senior counsel at law firm Sackers, Arshad Khan, does not believe it will be “strictly necessary” to revisit past or ongoing recoupments. This would require a member to dispute the recoupment, “in circumstances where there would very likely not be much point in doing so if the PO has already made a past decision which the trustee has implemented", he says. “It’s not likely there will be a stampede of retrospective applications for a court order, albeit it can’t be ruled out if affected members were to force the issue." 

 

After a TPO determination, a court order to implement a recoupment process is only strictly necessary if the member continues to dispute the recoupment, he observes: “It is possible in practice that some scheme members will call it a day once the PO has determined their case and no longer dispute the recoupment if there is an inevitability about the matter.” 

 

Khan notes some other implications of the CMG ruling. Were trustees to make the same mistake that Aecom did now – not obtaining a court order for disputed recoupments, but after CMG – this would lead to compensation being due, irrespective of the merits of the case, because it would amount to maladministration and a breach of law. 

  

Another change is that post CMG, the ombudsman will be more specific about how much to recoup and how. 

 

"Previously, he would not necessarily have been so involved in the detailed examination of the financial amount to be repaid,” says Khan. “This need for a precise figure is because the determination might need to be forwarded to the county court for an order to be made and the court would need to be told the amount to be recouped.”  

 

On whether past decisions need to be reviewed, professional trustee Kate Lloyd from Dalriada Trustees agrees with Khan.  

 

“I don’t think there is an urgent need to review recoupment processes,” she says. 

 

Lloyd also pointed to the DWP planning to introduce legislation to empower the Pensions Ombudsman to bring an overpayment dispute to an end without a court order.  

 

"We will watch this space," she says. 

Are you considering revisiting past recoupments and overpayments?