Recovery of past overpayments to members can be a significant problem for pension scheme trustees. In such a scenario, trustees may decide to recover these payments by way of recoupment (i.e. recovery overpayments from future instalments of pension). However, under section 91(6) of the Pensions Act 1995 (the 1995 Act), where the trustees are seeking to exercise a set-off against pensions benefits in order to recoup overpayments, but there is a dispute as to the amount that is being recovered, a court order from a “competent court” will first be required before the recoupment can commence.
In Pensions Ombudsman v CMG Pension Trustees Ltd and another [2023] EWCA Civ 1258, it had already been concluded that some scheme members and beneficiaries had received an overpayment of benefits. The key issue was therefore whether the Pensions Ombudsman was a “competent court” for the purposes of obtaining a court order for a recoupment claim, specifically under section 91(6) of the 1995 Act.
The Court of Appeal’s decision was that the Pensions Ombudsman could not be a competent court for this purpose. The main rationale was that the Pensions Ombudsman does not share the key functions of a court of law – namely, it only has jurisdiction if a matter is referred to it by a member or beneficiary, meaning that the Court of Appeal considered that there would be an inherent one-sided element in a Pensions Ombudsman’s determination.
This ruling follows similar findings in previous cases, namely Burgess v BIC UK Ltd [2018]. However, the key difference is that, after the Burgess case, the Pensions Ombudsman took the view that the High Court’s decision on what a “competent court” is could be considered as an ancillary comment and therefore did not need to be followed. With the arrival of the decision of the CMG case this year, it seems that the courts have decided that the Burgess decision should indeed be followed.
This development provides clarity for trustees who may seek repayment of overpayment of benefits through recoupment. It is now clear that, under section 91(6), trustees need to take a further step to seek judicial approval from the County Court, and not the Pensions Ombudsman, to ensure enforcement. Whilst the Pensions Ombudsman is yet to issue his views, in the wake of this case it may serve as a call for trustees to make concerted efforts to agree recoupment provisions with members upfront. However, given that members generally try to resist recovery of overpayments, trustees will also need to consider the cost benefit analysis of securing County Court approval where there is a dispute.
