Recouping overpayments - The Pensions Ombudsman v CMG Pension Trustees Limited and CGI IT UK Limited – the implications of needing a County Court order

In November last year the Court of Appeal dismissed the Pensions Ombudsman's (Ombudsman) appeal of the 2022 High Court decision in CMG Pension Trustees Ltd v CGI IT UK Ltd [2022]. The Court of Appeal's decision upheld the High Court's decision that the Ombudsman is not a "competent court" to recoup overpayments under section 91(6) of the Pensions Act 1995.

This decision has implications for the thorny (and common) issue of recouping overpayments to pension scheme members by way of future reduction in benefits, including increasing the cost of recovering overpayments.

The High Court Decision

The appeal arose from a High Court judgment in the case of CMG Pension Trustees Ltd v CGI IT UK Ltd which was handed down on 1 August 2022. The case concerned the trustee of a pension scheme's ability to recover overpaid benefits by reducing subsequent pension payments – "recoupment". For trustees to recoup overpayments, the conditions outlined in Section 91 of the Pensions Act 1995 had to be satisfied. One of these conditions under Section 91(6) required that in points of dispute regarding the recoupment amount (which was a dispute in the case), deductions could not be applied unless the obligation to do so “has become enforceable under an order of a competent Court”.  

The High Court held that when recouping overpayments from future pension payments a declaration of overpayment from a "Court of competent jurisdiction" would suffice.  This was because the member would not have to repay the overpaid sums directly, but rather the trustee would retain money from subsequent instalments of pension payments. 

The High Court then found that the Ombudsman was not a competent court and as such had no powers of enforcement, meaning applications should be brought in the County Court for declarations of overpayments.

The Court of Appeal Case

Following the High Court Decision the Ombudsman intervened and appealed, arguing that it was a competent court for the purposes of Section 96(1) Pension Act 1995. 

Following both parties' submissions, the Court of Appeal unanimously ruled that the Ombudsman is not a "competent court" for the purposes of Section 91 Pensions Act 1995.

The Court of Appeal emphasised that the Ombudsman only ever had jurisdiction where a matter was referred by a member or beneficiary of a trust and this one-sided jurisdiction was not resemblant of a court. The Court of Appeal stated that it was unlikely Parliament intended for the Ombudsman to hold the power of enforcement in cases where the trustee had no personal right to apply for enforcement.

Implications

In light of the CMG decision, where a member disputes the trustees' attempt to recover overpaid benefits from future pension payments, the trustees must obtain an order from the County Court albeit this should just be an administrative function as the County Court is not reconsidering the merits and instead only enforcing the Ombudsman's determination.

The Ombudsman has since commented on the Court of Appeal's decision noting that the DWP is supportive of legislative changes to formally empower the Ombudsman to bring outstanding overpayment disputes to an end without the need for a County Court order.  The Ombudsman has also produced a factsheet following the CMG decision and notes that to facilitate enforcement action before the County Court it will set out a schedule of the amount and rate of recoupment in its determinations (and it has done that in its first determination since the CMG decision).

A further practical implication of the CMG decision is that strategically members may dispute the amount or rate of recoupment to push a case to the Ombudsman and the County Court – this will incur further costs for trustees seeking to recoup overpayments and those costs may be passed on to any administration provider to a pension scheme where it can be said that they are at fault for any overpayment.  Although the Ombudsman notes in its factsheet that it hopes parties can come to an agreement in overpayment cases, there may be a strategic advantage for members to "string out" cases given the additional costs and time involved to obtain an order for recoupment.