The High Court has ruled that there is no statutory limitation period in which to recover pension overpayments under a defined benefit (DB) scheme, as long as this is by adjusting future payments.
However, recovering such payments cannot be as simple as seeking determination by The Pensions Ombudsman (TPO), but that this determination would then need to be enforced by a County Court, the court ruled in Burgess and others v BIC UK.
The ruling, handed down 17 April, centred around whether BIC UK Pension Scheme Trustees had effectively introduced annual increases to pensions via a meeting in 1991, and, if not, whether the payments could be recouped.
Through an executed deed to alter the scheme's rules in 1993, and a resolution passed by trustees recorded in minutes of a meeting in 1991, members became entitled to annual increases at the lower of 5% or the Retail Prices Index for the period between 6 April 1992 and 6 April 1997.
While much of the judgment deals with the process taken to introduce the increases - which was deemed effective - Justice Arnold also confirmed that the six-year statutory limitation period on claims did not apply to equitable recoupment.
However, this process - one of "equitable self-help remedy" - must be conducted via an adjustment of benefits in the future, rather than a request to be repaid monies previously received by members.
Further, while "it would be the trustees' duty, and not inequitable, to seek to recover overpayments and thereby increase the assets available for the benefit of all the members", trustees should review this on an individual member basis, as it may be inequitable in some cases.
Trowers & Hamlins partner Martin McFall, whose firm acted for BIC, said the case was significant as it dealt with a number of complex pensions issues.
"While brought to determine the validity of increases to pensions in payment for service prior to April 1997, [this case] also required consideration of several important, wider questions for trustees, employers and advisers alike. It is a significant pensions case as it seeks to grapple with a number of thorny issues flowing from the main issue.
"Justice Arnold agreed with the company's view that recovery of overpayments through the equitable right of recoupment was not restricted to a six-year limitation period… preferring the explanation that recoupment was a future account adjustment rather than a claim for payment of monies."
The court also ruled that the trustees themselves could not seek a determination from TPO, and that a determination made by TPO upon reference by a member was not in itself legally enforceable as the ombudsman is not a "competent court" under legislation. Instead, the determination must be referred to the County Court in order to be sanctioned.
Commenting on the ability to amend the scheme retrospectively, Mayer Brown pensions practice partner Richard Evans said the court had taken a creative approach.
"We've seen many cases where benefit changes purportedly made in the 1990s have been challenged because the parties did not observe the necessary formalities," he said. "Most of those cases have involved benefit reductions - here the disputed change was a benefit improvement, the challenge from the sponsoring employer.
"True to recent form, the court's starting point was that failure to observe the formalities meant that the change was invalid. But the court took a creative approach, accepting that the change could be treated as valid in the light of a subsequent retrospective deed."
He added the judgment will be of interest for those watching the Safeway v Newton case, which has been referred to the European Court of Justice to decide on whether a 1996 deed could retrospectively enforce a 1991 communication to members.
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