A recent determination by the Pensions Ombudsman provides a clear reminder for pension scheme members: where a pension payment appears unusually high, a telephone query alone may not be sufficient to protect against future recovery action.
Background
Mr L retired from HM Revenue & Customs in 2010, aged 52, under the Principal Civil Service Pension Scheme, with an annual pension of £21,767.97. When he reached age 55, pension increases were applied retrospectively to cover the period since he first began drawing his pension. However, rather than applying the correct uplift of 6.83%, the scheme administrator, Capita, incorrectly doubled his pension, increasing it to £46,509.70 per annum.
Mr L identified the significant increase and contacted Capita by telephone on several occasions to query it. He stated that he was reassured that the amount was correct. The error was not identified until three years later, by which point overpayments totalling £53,125.38 had been made.
The key issue: whether Mr L acted in good faith
Mr L accepted that he had been overpaid. The central question was whether he could rely on a change of position defence, on the basis that he had acted in good faith by adjusting his lifestyle and expenditure in reliance on the higher pension and should not therefore be required to repay the full amount.
The Ombudsman was sympathetic to Mr L’s position but was ultimately not persuaded. Although Mr L’s account of his telephone calls to Capita was not disbelieved, there were no recordings, written notes or documentary evidence to corroborate what had been discussed. The Ombudsman considered that, had Mr L followed up in writing, Capuita would have undertaken a genuine review of the pension calculation which would have immediately identified the 113% increase over just 2.5 years.
The Ombudsman concluded that a reasonable person whose pension had more than doubled would have followed up in writing to obtain proper verification. Mr L’s failure to do so meant that he could not establish the good faith required to rely on a change of position defence.
The Ombudsman also considered, and rejected, the defences of estoppel, limitation in the context of equitable set-off, and hardship. The full overpayment was held to be recoverable over a 37-month period.
Practical implications for members
This determination highlights a practical but often overlooked point: verbal reassurances are unlikely to be sufficient where a member seeks to rely on them in response to recovery action. Where there is a material change to a pension - particularly an unexpected and substantial increase - members should consider taking the following steps:
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Raise the query in writing
A letter or email creates a contemporaneous record and requires the administrator to engage with the specific concern raised.
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Maintain clear records
Members should note the dates of any conversations, the names of those spoken to, and the substance of what was discussed. If a dispute arises years later, memory alone is unlikely to be sufficient.
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Do not assume that silence equals confirmation
A lack of follow-up from the scheme administrator should not be treated as confirmation that the benefits are correct.
Conclusion
The Ombudsman acknowledged maladministration by the scheme manager. However, maladministration by an administrator does not displace a member’s obligation to act reasonably where there are clear indications of an error. For members, the practical message is clear, namely, where a pension increases unexpectedly and substantially, a telephone query should be regarded as a starting point rather than a complete safeguard. Written confirmation and a clear record of communications may be critical if recovery action is later pursued.
If you have any questions about the issues discussed in this blog, please contact Juliet Bayne, another member of the pensions team, or your usual Brodies contact.
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