A former teacher (Mr Webber) and the Teachers’ Pension Scheme (TPS) have been in an ongoing dispute concerning the overpayment of Mr Webber’s pension. Originally heard by the Pensions Ombudsman (PO), the matter has been referred between the PO and the High Court, recently culminating in the High Court’s judgment on 14 October 2016 (the October 2016 Decision).

The October 2016 Decision will potentially create significant obstacles for pension schemes looking to recover past overpayments made in error. Should a court, or the PO, determine that pension scheme trustees and managers should have identified overpayment errors earlier than they actually did, or if there is a prolonged attempt at resolution through a scheme’s internal dispute resolution procedure (IDRP), the overpaid member may be able to resist claims for full recovery due to the expiry of the limitation period.

The TPS is a statutory occupational pension scheme administered by Teachers’ Pensions (TP), established under the Superannuation Act 1972. The current regulations to the TPS are set out in the Teachers’ Pension Regulations 2010. Each set of these regulations held a provision entitled ‘The Abatement of Retirement Pensions during further employment’ (the Abatement Regulation). The principal purpose of the Abatement Regulation was to ensure that, in certain circumstances, a retired teacher who was receiving a TPS pension would have his pension reduced if the person returned to employment, and the combined total of his salary and pension was more than his salary on retirement (adjusted for inflation).

This particular High Court decision focussed on the limitation period and its effect on TP’s ability to claw-back overpayments. Under section 5 of the Limitation Act 1980, a claim for repayment of money paid by mistake cannot be brought later than six years following the time when the mistaken payment was first made. However, under section 32 of the Act, that six-year limitation period will not start to run until the claimant first discovers the mistake, or the time at which the claimant should have reasonably discovered the mistake.

Mr Webber was a member of the TPS and retired at the age of 50 in 1997, before returning to full-time employment in 2001. On his return to work, Mr Webber telephoned TP to discuss the level of his ‘salary reference’ to establish his maximum possible earnings before abatement. TP informed Mr Webber that his earnings for the remainder of tax year 2001-2002 would not take him over the abatement threshold. However, TP overlooked the fact that his earnings for the full tax year 2002-2003 (and in every subsequent year) would take him over this threshold. Due to this oversight, Mr Webber was paid his TPS pension in full, with no abatement.

On spotting the error in 2009, TP wrote to Mr Webber to recover £36,282.53 in overpayments.

Mr Webber complained through the TPS’ IDRP in July 2010, followed by a complaint to the PO in April 2011. The PO initially found against Mr Webber, who twice appealed to the High Court (his first appeal was remitted back to the PO). On the second appeal, Mr Webber referred to the question of the limitation period. The judge (Nugee J) upheld the appeal on that issue and concluded that at the point of the first overpayment (tax year 2002-2003) TP should reasonably have identified that Mr Webber’s pension would need to be abated and the limitation period could, therefore, have commenced from that date. Despite this, Nugee J did not identify an actual ‘cut-off’ date for the limitation period (Cut-Off). TP would only be able to recover overpayments made in the six year period ending with the Cut-Off. Rather than express his own view, Nugee J invited the two parties to come to an agreement over the Cut-Off.

The parties failed to agree and the case was once again brought before the PO. The PO decided that the closest TP came to “bringing a claim” (section 5 of the Limitation Act 1980) was when they wrote to Mr Webber in November 2009 with details of his overpayments and their attempts to recover the same. The PO, therefore, decided that this date should be the Cut-Off. Mr Webber disagreed and appealed once more to the High Court.

On appeal a range of possible dates for the Cut-Off were mooted, including:

  • the date held by the PO and as argued for by TP, being the date of TP’s November 2009 letter which first notified Mr Webber of the overpayments
  • the date Mr Webber received the November 2009 letter
  • the date the PO received Mr Webber’s complaint regarding the demanded repayment
  • the later date on which the PO notified Mr Webber that he had accepted Mr Webber’s complaint for investigation.

It was also a possibility that no Cut-Off had occurred or could occur in this scenario since the PO’s complaint processes did not involve TP making an actual claim at any stage.

Edward Bartley Jones QC (sitting as a deputy High Court judge) disagreed with all of the possible dates. Although the November 2009 letter included a demand for repayment, it was not sufficient to stop the limitation period running if Mr Webber had not then issued a complaint to the PO. TP would have needed to issue a claim form in order to impose the Cut-Off at this point. His conclusion was that the point of action taken by TP which was most akin to an actual legal claim for recovery of the overpayments was the point at which the PO received TP’s reply to Mr Webber’s complaint; this date was later than all other dates considered. In the judge’s view, this date was the point that the ‘case’ was put into the “context of formal proceedings”.

This decision vastly reduced Mr Webber’s liability for the overpayments.

The outcome of the case may result in a contradictory approach between the desire to initially resolve ongoing pension scheme disputes using IDRP processes and a precautionary approach of issuing claim forms in the civil courts in order to impose the limitation period Cut-Off. This will invariably not only result in the affected member viewing the IDRP process as being very one-sided due to the threatened civil court claim, but will also usually deprive that member of being able to bring a complaint to the PO leaving them exposed to court costs and legal fees.

That said, hopefully the decision will ensure trustees act diligently and identify errors at an early stage to allow sufficient protection under section 32 of the Limitation Act 1980.