Overpayment – The case study of Mrs E

Mrs E was a member of the Teachers’ Pension Scheme (the Scheme) and she complained that Teachers’ Pensions (TP) were attempting to recover an overpayment of £13,506.15 from her. 

Mrs E’s first period of service in the Scheme was from November 1975 until February 1980. When Mrs E left the Scheme in 1980, she applied for and was paid, a refund of her contributions. As a result of the refund, Mrs E no longer held any accrued pensionable service under the Scheme. However, due to an error, TP did not update its system and its records continued to show that Mrs E had pensionable service for her first period of service. 

Mrs E re-joined the Scheme in 1983 and began to accrue pensionable service. In 2004, TP began to issue estimates of retirement benefits (EORBs) annually to Scheme members. Mrs E left the Scheme in August 2008 and ceased accruing pensionable service.

In April 2014, TP undertook an internal review of its records and noted that Mrs E’s pensionable service was incorrect. It logged a note stating that her record needed to be updated with the correct amount of pensionable service. However, no action was taken to ensure this happened.

Mrs E reached normal retirement age in July 2014 and, in August 2014, she applied to receive her benefits from the Scheme. In September 2014, TP sent Mrs E a statement confirming her benefits (the 2014 statement). The 2014 statement included a breakdown of the tax-free lump sum she could expect to receive and the annual income she could expect to receive thereafter. Shortly after the 2014 statement was sent, Mrs E received her lump sum payment, and her regular income came into payment also.

In December 2018, Mrs E’s income from the Scheme was suddenly reduced and she received £345.77 a month instead of the usual £513.36. In January 2019, TP wrote to Mrs E confirming that it had made an error when it calculated her pension benefits in 2014. TP said it had reduced Mrs E’s income to the correct level in December 2018, and there was also an overpayment of £13,506.15 which Mrs E would need to repay.  

In mid-January 2019 TP wrote to Mrs E to chase repayment of the overpayment. Following which Mrs E rang TP to request that it stop sending letters chasing the overpayment, as she needed time to consider the information and assess what she was going to do. Mrs E raised a formal complaint shortly after. TP responded saying that the overpayment needed to be repaid and it offered her £500 for distress and inconvenience caused.

Mrs E then complained to TPO. In her submissions Mrs E said that she was not aware she was being overpaid benefits from the Scheme. She recalled receiving a refund of her contributions for the period November 1975 to February 1980, but she did not know that this period had been used to calculate her benefits from the Scheme when they came into payment. 

Mrs E provided a significant level of information regarding her income and outgoings from 2014 to 2018. She highlighted that this evidence demonstrated that she had a low level of disposable income during the period the overpayment accrued, and that she did not save regularly. In addition, Mrs E provided evidence of additional expenditure she incurred through gradually building up her disposable income. In particular, she bought her son expensive wedding gifts, and she also went on two extended trips abroad. She has emphasised that this is expenditure she would never have incurred, but for the additional income she was receiving, which she thought she could rely upon.

Mrs E’s complaint was considered by an Adjudicator. The Adjudicator noted that TP was seeking to recover the overpayment by way of repayment and concluded that the Limitation Act did not apply in the circumstances of this case. The Adjudicator considered whether Mrs E had a change of position defence against recovery of the overpayment. She concluded that Mrs E did not in relation to the overpayment of the lump sum as Mrs E had used this money to pay off her mortgage, improve her home and invest in her business. However, Mrs E did have a defence to recovery in relation to the overpaid pension payments as she had spent the income irreversibly on expenditure she would not otherwise have had. 

The Adjudicator concluded that Mrs E had a partial defence against recovery of the overpayment, based on a change of position defence. 

Mrs E accepted the Adjudicator’s Opinion but TP did not and the case was determined by the Pensions Ombudsman. TP argued that Mrs E should have been aware of the error from the EORBs and the 2014 statement and so a change of position defence had not been made out. In addition, TP said that there was insufficient evidence that Mrs E did not save regularly during the period the overpayment accrued and she had not spent the overpayment irreversibly. 

In his conclusions the Pensions Ombudsman agreed with TP that Mrs E had information in her possession that would have enabled her to realise that her forecasted benefits may be incorrect. However, he said the test of good faith in a change of position defence is a subjective one and it was not enough for TP to show that it had sent the information to Mrs E but it also needed to be clear that on balance Mrs E had spotted the error and understood the implications. 

The Pensions Ombudsman took into consideration that Mrs E was not a pension professional, that she had made unprompted statements which indicated that her knowledge of pensions was very basic and that Mrs E’s account had been genuine and consistent since she had been informed of the overpayment. The Pensions Ombudsman concluded that Mrs E had spent the overpayment of pension payments in good faith. 

In relation to TP’s argument that Mrs E had not spent the overpayment irreversibly the Pensions Ombudsman considered the financial evidence provided by Mrs E and concluded that given Mrs E’s overall disposable income during the overpayment period he did not find it likely that she would have had the expenditure but for the overpayment. Further, the Pensions Ombudsman noted that there was no evidence of Mrs E saving regularly during the overpayment period or where those savings would have gone.      

The Pensions Ombudsman found that there was a change of position defence against the recovery of the overpayment of pension payments and upheld the complaint in part. 

The Pensions Ombudsman directed that TP:

• reduce the overpayment by £5,667.51 and agree an affordable payment plan with Mrs E, and 
• pay Mrs E £1,000 for the serious distress and inconvenience caused.