TPO provides useful guidance on approach to recovery of overpayments

The Deputy Pensions Ombudsman’s (DPO) 20 June 2025 determination partially upholding the complaints of Mr and Mrs D regarding the recoupment of overpayments under the BIC UK Pension Scheme provides useful guidance on how The Pensions Ombudsman (TPO) will approach overpayment recovery complaints in trust based occupational pension schemes. 

The determination uses the April 2024 TPO determination in respect of Mr E as a lead case. A lead case approach may be taken by TPO where there is an industry-wide complaint or a scheme-specific issue that may impact numerous members of the same scheme. In the Mr E case, TPO undertook a detailed analysis of the defences available to members where they have been overpaid benefits which the trustees wish to recoup by reducing or suspending future pension payments. 

We set out below the key points of the general guidance and how the DPO applied this to conclude that it would not be equitable for the trustees to recoup most of the overpayments from Mrs and Mrs D’s pensions.

Background to the complaint – the court case

The complaint stems from the Burgess v BIC UK 2019 Court of Appeal judgment that a 1991 resolution by the then trustees to increase pensions relating to pre-April 1997 pensionable service in excess of the guaranteed minimum pension (GMP) annually by the lower of the Retail Prices Index or 5% (the Pre 97 Increase) was ineffective. Although the trustees had a power under a 1991 set of rules to award discretionary pension increases, this discretion was not carried over to subsequent sets of rules. A new trust deed and rules dated 29 May 1993 provided that only the GMP part of a pension and not the excess would be increased. The Court’s decision meant that affected members such as Mr and Mrs D had been overpaid benefits. The trustees decided to recoup those overpaid benefits in March 2020. 

Facts

Late 1990s

Mr and Mrs D retired in the late 1990s and received the Pre 97 Increases until March 2013. 

2013 Announcement

A 22 February 2013 member announcement explained that, due to conflicting advice received on the Pre 97 Increase and uncertainty as to members’ entitlements, further increases would be suspended but there would be no “deductions, at this time, for increases already applied, that may not have been in line with Scheme Rules”.

There was no reference to overpayments either in this communication or others until a 30 March 2020 announcement (the 2020 Announcement). 

Although Pre 97 Increases were no longer awarded going forwards, overpayments to affected members continued to build up between 2013 and 2020 because the pension being paid included the potentially invalid increases that had already been granted. 

2017 Announcement

A March 2017 member announcement explained that the High Court would be considering the validity of the Pre 97 Increases and that further updates would be provided. 

Payslips and P60s

The payslips and P60s sent to pensioner members of the scheme set out pension and tax information. Those sent to Mr and Mrs D were not qualified. TPO found in the Mr E case that payslips and annual P60s can amount to a representation as to an entitlement to the amount shown, meaning that estoppel “may arise in many more circumstances than it is commonly thought”. However, other information provided to the member is also relevant and, in many cases, this may contain caveats or disclaimers which mean that the representation test is not satisfied. 

2019 Announcement

A May 2019 member announcement reported on the Burgess court decision but did not inform members that overpayments might end up being recovered.

2020 Announcement

On 30 March 2020, the trustees informed Mr and Mrs D that they would be reducing their pension to the correct level because of the Court of Appeal’s finding that the Pre 97 Increases had been invalidly granted and that they would also recoup past overpayments. Recoupment was suspended pending TPO’s decision.

Mr and Mrs D’s position

The crux of Mr and Mrs D’s case was that they had “planned their retirement around the pension figures in good faith”. They did not wish to dispute the reduction of their pension to the correct level, just the recovery of the overpayments. 

Guidance on TPO’s approach to overpayments 

The determination provides valuable guidance on TPO’s approach to overpayments in trust-based occupational pension schemes.

General trust law

Trustees must pay the correct benefits as provided for under the scheme rules and overriding legislation. Generally, they must also reduce a pension to its correct level going forwards where incorrect benefits have been provided. 

Possible estoppel defence giving right to higher level of benefits

Trustees may be estopped (prevented) from providing the lower correct pension. However, it is only in ‘highly unusual’ cases that a court or TPO would find that there was an estoppel giving a right to continued benefits at a higher level than the entitlement under the scheme rules. 

Financial injustice/ negligent misstatement claim

If a member can show that they reasonably relied on inaccurate statements about their pension entitlement and that they have suffered a loss because of this reliance they may have a claim for financial injustice/ negligent misstatement against the person who made the statement.

The remedy for the loss suffered is monetary compensation putting the member in the position they would have been in had the negligent misstatement not been made, not an entitlement to the promised benefit. The compensation can be set off against the overpaid benefits which from a legal standpoint remain recoverable. 

Contract

TPO may also consider whether there is a contract between the trustees and the member providing a higher entitlement than that which is provided for under the scheme’s governing provisions. The necessary elements are offer, acceptance, consideration and an intention to create legal relations of a contractual nature and certainty of terms. It is unusual for this to be the case in a pensions context – see our case summary for details of a complaint in which TPO did decide that a contractual entitlement to pension benefits had arisen. 

Carelessness no bar to recovery

Generally, carelessness by the party at fault for the mistake does not prevent recovery of the overpayment.

Power to compromise

Trustees may have the ability to compromise a claim either under statute and/or under the scheme’s governing provisions. 

Two recovery methods

• Repayment: claiming the overpayment directly from the member on the basis of unjust enrichment. It is different to recoupment. 
• Recoupment: the more typical method of recovery is recoupment, an equitable self-help remedy whereby the overpayment is recovered by making a deduction from future pension payments. 

TPO did not need to consider repayment in this case because the trustees planned to recoup Mr and Mrs D’s overpayments from future pension instalments rather than ask them to repay the overpaid amounts.

Defences: repayment

There are four possible defences against recovery: (1) change of position; (2) estoppel by representation or convention; (3) a contractual right to keep or continue receiving the mistaken payment; or (4) a limitation defence under the Limitation Act 1980.

Defences: recoupment

There are essentially two defences: (1) if it would be inequitable to permit recoupment; and (2) the defence of laches. 

Recoupment: inequity defence (look at change of position and estoppel)

In deciding whether it is equitable to allow recoupment, TPO will refer to the equitable principles underlying change of position and estoppel. 

Recoupment defence: change of position

For a change of position, the member must be able to demonstrate that they have acted in good faith, suffered detriment and would not have acted as they did but for the overpayment.

Good faith

The member must have acted in good faith and not have actual or ‘Nelsonian’ knowledge of the overpayment – that is knowing that they had been overpaid or being aware that this was a possibility but not clarifying the position. The focus is on what the member actually knew, rather than what they should have known based on what a reasonable person might have known – carelessness or negligence is not enough.

Detriment and causation

The overpayment must have caused the member to detrimentally change their circumstances – usually, because they have spent money which they would not otherwise have done but for the overpayment (a causal link between the change of position and the overpayment is required).

Detriment can include modest improvements in lifestyle and a rise in a person’s general standard of living. This being the case, it may not be appropriate to apply too “demanding a standard of proof”. Sometimes gifts can qualify. Broadly, the member must have spent the money in a way that cannot be undone, or it must not be possible to resell a purchased asset.

Recoupment defence: estoppel

Estoppel by representation (‘very similar’ to change of position conditions ‘more stringent’)

A representation may mean that a party will be held to the representation made (they are ‘estopped’ from going back on it). Three tests must be satisfied.

• Test 1: There must be a clear representation (or promise) upon which it is reasonably foreseeable that the claimant will act.
• Test 2: The claimant must act and do so reasonably in reliance on the representation.
• Test 3: They must suffer detriment if the defendant is not held to the representation.

Estoppel by convention

If parties act on common assumption that a particular set of circumstances is true, a party will not be permitted to go back on that agreed assumption if it would be unfair to do so.

Recoupment defence: laches

Although a limitation defence is available in repayment cases, it does not apply to recoupment. However, a laches defence is applicable. Laches is an equitable doctrine that can act as a recoupment defence where the trustee knows about a benefit issue and has acquiesced or there would be prejudice or detriment to the member. Overall, would it be inequitable or unconscionable to allow recovery? Some form of detrimental reliance is usually needed. Relevant factors include the length of the delay and what was done or not done during the applicable period.

As noted in the Mr E determination, time for the purposes of laches may begin to run from when an issue is first identified by the trustees, not from when the issue is determined. Schemes should investigate overpayments or potential overpayments without undue delay. 

Do not recoup if there is a dispute without a competent court order

Under section 91, Pensions Act 1995 an enforcing court order must be obtained where a member disputes recoupment of overpaid benefits. The Court of Appeal decided that TPO is not a ‘competent court’ for such purposes. 

The Pension Schemes Bill is going to amend the current requirement for trustees to obtain a County Court order to enforce a TPO determination that they may recoup overpaid benefits where the member disputes recoupment. When implemented this will mean that in addition to a court being able to order enforcement, a TPO determination as to the amount of the monetary obligation will also suffice as will resolution of the dispute between the parties. However, until this time, a County Court order is still required.

Recovery period

The starting point for a recovery period is that it should generally be at least as long as the overpayment period – but this is subject to change (either longer or shorter) in relevant cases. Affordability should also be considered. If a person’s circumstances change during the recovery period, the rate should be reassessed and changed if it would be equitable to do so.

Maladministration

 TPO may grant a distress and inconvenience award where it is appropriate to do so if there has been maladministration in making the overpayments. 

The DPO went on to apply this general approach to Mr and Mrs D’s case.

Application of change of position principles by analogy to Mr and Mrs D

• DPO decision: change of position defence until March 2020 Announcement 

The DPO decided it would be inequitable to allow recoupment in respect of the period before the March 2020 Announcement.

Good faith

As TPO did in the case of Mr E, the DPO found that Mr and Mrs D had acted in good faith up to the 2020 Announcement when they had actual knowledge that they were not entitled to the Pre 97 Increases.

They “had no reason to suspect and could not have known” that the Pre 97 Increases were not validly granted up to the 2013 Announcement – they were told that increases were due, and their payslips reinforced this.

Even after the 2013 Announcement, the complainants acted in good faith – the 2013 Announcement was ‘poorly drafted’ and did not adequately explain the potential consequences of reserving the trustees’ right to deduct in the future (i.e. that a member might have been overpaid, further overpayments were still ‘baked-in’ and continuing to accrue, and that these may need to be recovered). It should have done so in an explicit manner. Instead, the wording was ‘unclear’ and ‘over-optimistic’.

The payslips also failed to include any additional ‘warning’ that part of their pension included past increases to which they may not be entitled. 

The DPO considered whether the 2019 Announcement informing members about the outcome of the court case changed anything. As in the case of Mr E, the DPO found that the 2019 Announcement did not adequately cover the consequences of the Court’s ruling. It was not until the March 2020 Announcement that this was the case meaning it was only then that Mr and Mrs D no longer had a change of position defence. 

Detriment and causation

The available evidence showed that whilst Mr and Mrs D were prudent pensioners, their expenditure was higher than it would have been but for the overpayments. This was enough to establish detriment.

Application of estoppel principles by analogy to Mr and Mrs D

• DPO decision: estoppel defence until date of 2013 Announcement, but not after this date

Estoppel by representation: estoppel operated until 2013

On the same grounds as TPO did for Mr E (see our case summary), the DPO concluded that it would be inequitable on estoppel by representation principles to allow the trustees to recoup the overpayments made in the period up to the 2013 Announcement. However, she differentiated the period after this from the change of position reasoning. This was on the basis that, after this date, TPO did not believe that adequately clear representations had been made to Mr and Mrs D that they were entitled to the full level of benefits that they received after this date.

Estoppel by convention: not applicable

Estoppel by convention was not applicable in this case, as there were no mutual dealings between the parties, similar to the situation in the Mr E case.

Overall conclusion on whether appropriate to allow recoupment under general equitable principles

• DPO decision: recoupment would be inequitable up to March 2020 Announcement despite estoppel only being available up to 2013

Overpayment amounts that could be recouped

Taking into account, the DPO’s deliberations, only £542.69 of the total £31,413 overpayment for Mr D and £313.34 of the total £16,408 overpayment for Mrs D could be recouped by the trustees.

Laches, TPO decision: laches defence until March 2020 

Laches defence until 2020 Announcement

The DPO determined that it was equitable to allow a laches defence in respect of recovery for the overpayments that built up prior to the 2020 Announcement. DPO applied the same reasoning as was applied in Mr E’s case.

Contract, DPO decision: necessary elements not present

No contract 

The necessary contractual elements were not present, specifically, no intention by the trustees to enter into a legal relationship outside of the scheme rules that would provide a benefit entitlement over and above that which existed under the scheme rules. 

Maladministration, DPO decision: maladministration established – distress and inconvenience award of £1,000 each to Mr and Mrs D

Three instances of maladministration

The DPO found maladministration for three reasons: (1) the overpayments arose because the trustees had not documented the increase provision and/or applied the increase rule properly; (2) they did not explain the position properly to members in 2013; and (3) they did not resolve the position in a reasonable period.

The £1,000 distress and inconvenience awards were set off against the recoverable overpayments.