Graham Wrightson looks at what can be learnt from recent Pension Ombudsman determinations into pension overpayments

There has been a spate of Pension Ombudsman (PO) determinations over the past few months relating to pension overpayments under the Teachers’ Pension Scheme (TPS). So are there lessons to be learned?

The TPS regulations allow members’ pensions to be reduced or suspended on a return to work after retirement. Key to this is provision of a ‘Certificate of re-employment’ where a person works as a teacher and his/her pay alters. Where, due to failing to provide a certificate, pension is overpaid, a ‘teacher must repay that sum promptly’.

Mrs Farnfield (Mrs Fd) worked as a teacher and retired early. The administrator (TP) confirmed her pension in July 1997; she then returned to part-time work in 2003 (but omitted to inform TP) and to full-time employment in 2004 when she asked TP what effect her employment would have on her pension. TP told Mrs Fd that she needed to complete a certificate to prevent a pension overpayment but, in 2008 and 2009, advised Mrs Fd that she had been overpaid £16,000. Without Mrs Fd’s agreement TP then set the overpayment off against the lump sum payable. The PO concluded that, although the overpayment had continued for three and a half years, Mrs Fd should have known that she needed to complete a certificate. It was maladministration to offset the overpayment as this contravened section 91 of the Pensions Act 1995 (which allows an employer to charge a member’s benefits) but the overpayment was still recoverable by TP.

In Mr Fitzgerald’s (Mr Fz) case, he received an early retirement pension but had subsequently taken a number of teaching positions. Like Mrs Fd, he knew he needed to complete certificates but did not. Although TP knew, throughout Mr Fd’s periods of employment, that he was an active member, TP still sought to recover £70,000 in overpayments. Mr Fz argued that TP should share responsibility for the overpayments. The PO criticised TP’s ‘lax’ systems and concluded it was maladministration in not acting on the information they had. However, Mr Fz was obliged to ‘actively chase’ TP (which he had not done) and had benefited where he should not have. Given the size of the overpayment, TP and Mr Fz were asked to agree repayment terms to avoid undue hardship. The PO considered that “typically the repayment should cover the period [Mr Fz] received his unabated pension” – in this case, 10 years.

The PO’s views on overpayments were reinforced in the case of Connolly. Mrs Connolly (Mrs C) complained about incorrect pension statements. The PO upheld her complaint for a number of reasons.

First, Mrs C’s benefits had been misquoted on numerous occasions - she had then relied on them and given up her permanent employment. Despite disclaimers, the PO’s view was that Mrs C was entitled to rely on the statements as accurate within ‘reasonable tolerances - overstatement by 25 per cent was “well outside such tolerances”.

Second, the letter telling Mrs C that her pension would be less than she had originally been quoted arrived the day before she took retirement, leaving her no realistic time to address the issue. Finally, the administrator had acted throughout with “bureaucratic detachment”. Mrs C was granted the pension which she would have received had she remained in employment until age 60, but working part-time and on a reduced salary; the overpayment was then deducted from that.

So what lessons can be learned?

. Schemes will generally be able to recover overpayments (even where the administrator fails to notice there has been an overpayment).
. However, no undue hardship should fall on a member where there has been an overpayment e.g. an appropriate repayment period should be allowed where overpayments are significant and/or have occurred over a long time.
. Lax administration procedures should be tightened up and administrators should act properly and promptly in relation to the information they receive.

Graham Wrightson is a partner at Stephenson Harwood

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