Overpayment of Pension
What is a pension overpayment?
An overpayment occurs when a pension scheme pays a member or other beneficiary too much money. This can occur for a variety of reasons, such as;
- Employers providing incorrect information to pension schemes;
- Administration mistakes; or
- Changes in circumstances not being updates.
Do you have to pay the scheme back?
The general legal principle is that a member is only entitled to benefits which have been properly calculated in accordance with the rules or regulations of their pension scheme. Therefore, in the event you receive an overpayment.
- An incorrect pension will almost always be reduced to the correct amount going forward; and
- We will contact you regarding the steps to recover the overpaid amount. For example, by deducting amounts from your future pension payments over a period of time, or asking you to repay it as a one-off lump sum.
This may seem unfair, particularly if it was not your fault that the error occurred. However, you are only entitled to your correct benefits. Also, as a provider of the Local Government Pension Scheme (LGPS) (Scotland), we have an obligation to use funds properly and put right mistakes where appropriate.
If you have been overpaid, you should;
- Contact us and set out any concerns or difficulties you have repaying the overpaid amount - this will help us decide the most appropriate way to recover the money; and
- Provide relevant evidence to help us decide whether there is any reason why a 'defence' should apply and the overpayment should not be recovered.
Possible legal 'defences'
In most cases, it is not your fault if you have been overpaid. But this does not mean you are entitled to continue to receive a higher incorrect amount of pension payments, or to keep money that you have already been overpaid.
However, in some limited circumstances, you may not have to repay some or all of the overpayment you have already received, if you can provide that legal defence applies to the situation. Legal defences occur in very specific circumstances that largely do not relate to whose fault the error was. There are technical legal tests used to establish these defences, but in summary these include;
1. 'Change of Position' - This could apply if you can demonstrate, with evidence, all of the following;
- You spent the extra money without knowing you were not entitled to it, and there was no reason you ought to have know;
- You spent the extra money on things you cannot sell or get money back from, such as a holiday;
- You would not have spent the money this way had you known this would lower your pension or lump sum; and
- In the circumstances, it would be unfair to require you to repay the money.
2. 'Estoppel' - This could apply if you can demonstrate, with evidence, all of the following;
- The pension scheme did something that made you reasonably believe your pension amount was correct, for example, there were statements confirming this amount;
- You have made irreversible decisions involving your finances under the impression you were being paid the correct pension; and
- You would suffer if you now had to repay the money; and
- In the circumstances, it would be unfair to require you to repay the money.
Important Note: Pension estimates alone usually are not enough to qualify for this defence. If information from the scheme included a warning that it was not final or binding, it will be unlikely that you can say you reasonably relied on it.
3. Delay or 'laches' - This could apply if;
- The scheme knew about the overpayment but delayed notifying you; and
- The delay caused you loss or disadvantage.
In this situation, you may not have to repay the money that was overpaid during the period of delay. There are also legal time limits in which the scheme can make a claim to recover the overpayment from you.
Evidence
If you plan to rely on a legal defence, you will need to provide evidence to support your position. If you cannot provide this evidence, it is unlikely your defence will succeed. This may include;
- Invoices or receipts demonstrating how the money has been spent;
- Pension Scheme documentation such as benefit statements, correspondence and/or telephone recordings;
- Personal documents such as bank statements, payslips, and P60s; and
- Document to demonstrate that the money would not have been spent if you had not received the overpayment - such as scheme correspondence and documentation, details of any queries you made regarding the value of your pension, or personal emails indicating your intentions in relation to your pension.
It is important for you to share relevant evidence with us to allow us to conduct a proper assessment. Without this evidence, we cannot establish whether you can rely on one of the above defences.
Resolving Disputes
The Pension Ombudsman (TPO) expects members and pension schemes to work together, and in most circumstances you should be able to agree how an overpayment should be recovered and over what time period. However, if an agreement cannot be reached, you should raise your concerns formally in writing with the party or parties you believe are at fault.
We will take you through our Internal Dispute Resolution Procedure (IDRP), including exploring the defences set out above at IDRP. If the complaints process has been completed, and there is still no agreement, you may be able to make a complaint to the TPO.
For further information about the overpayment of pensions from The Pension Ombudsman, please visit their website.