Recovering overpayments – where to draw the line?

Jason Shaw

Recovering overpayments can be a real headache for trustees. Failing to take the right steps at the right time can have a real impact on the prospect of recovering any overpaid monies at all. In addition, the time and cost involved in recovering the monies can sometimes entirely dwarf the amount that could be recovered. The recent High Court case of Webber shines a light on both of these issues.

I won’t go into the facts of the Webber case other than to say that it was an appeal from the Pensions Ombudsman and concerned the court trying to apply statutory limitation periods, which were designed for overpayment cases in the courts, to overpayment cases before the Ombudsman.

In a nutshell, if trustees seek to recover an overpaid pension through the courts, they would have six years from the date they discovered (or ought reasonably to have discovered) the mistaken overpayment. The clock stops running on that six-year period when the trustees issue a claim form at court. Simple enough. The issue is that trustees very rarely go to court to recover overpaid pensions and instead make deductions from members’ future pension payments so as to recover the overpayment over time. If the member objects, then they challenge the recovery before the Ombudsman. In this situation, where the trustees are not filing a claim against the member, when does the six-year limitation period stop running? It would make no sense if the limitation period continued to run until a claim was filed in court because this would result in trustees having to start court proceedings every time there is an overpayment. If that was the case, it would result in members fighting court cases (and being exposed to legal costs) and being deprived of the free and quick resolution offered by the Pensions Ombudsman.

Initially the High Court was of the view that the limitation period stopped when Mr Webber brought his complaint to the Ombudsman. However, in this new appeal, the court found that the limitation period stopped when the Respondent filed its response to Mr Webber’s complaint. The rationale being that the limitation period in the High Court is stopped when the trustees take the step of issuing proceedings and so the limitation period before the Ombudsman must also stop on the trustees, rather than the member, taking a step – in this case the filing of a response.

The case is unlikely to have much effect on the way that trustees deal with overpayment claims but it is a useful reminder of the need to be aware of and seek legal advice on limitation issues in overpayment cases, and to act swiftly when an overpayment has been discovered.

Finally, while the decision undoubtedly provides some clarity around the issue of limitation periods in overpayment cases before the Ombudsman, I can’t help but notice the irony of the “cheap and speedy resolution” offered by the Ombudsman resulting, in this case, in three Ombudsman determinations (with the possibility of a fourth) and three visits to the High Court – the upshot being a five-year Ombudsman complaint and legal fees that dwarf the relatively modest amount in dispute. As the court and Ombudsman have quite rightly said, it must surely be time for the parties to enter into sensible discussions as to how the money should be repaid.

For practical help with recovering overpayments, visit Pensions in Dispute, our new resource base for pensions disputes, at http://www.allenovery.com/publications/en-gb/pensionsindispute/Pages/default.aspx.

Jason Shaw is a senior associate at Allen & Overy LLP.

Comments published on Pensions Talk do not necessarily reflect the views of Allen & Overy or its clients.

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