Ombudsman criticises civil service pensions administrator

The Cabinet Office extended its contract with MyCSP earlier this year, despite £2.7m in overpayments to civil service pensioners being discovered during its tenure, which began in 2012. 

As previously reported by Pensions Expert, MyCSP said the errors occurred after employers made changes to the data used to calculate pension entitlements that were not considered by the pension scheme.

Good and accurate member communication could have stopped the problem emerging in the first place

Richard Meers, Gowling WLG

The most recent case involves a Mr N, who joined the Principal Civil Service Pension Scheme in 2009, transferring benefits from two separate money purchase pension schemes into it in 2010.

When he applied for his benefits in 2013, Mr N opted to give up some pension for additional tax-free cash, receiving £25,000, and the annual pension put into payment was £6,461.

However, a routine check by MyCSP in March 2018 discovered that his benefits had been overstated when he applied for retirement, and consequently he had been overpaid by £8,917.

The amount of annual pension he was entitled to would therefore be reduced from £6,752 to £4,442.

Though Mr N proposed and agreed a repayment plan with MyCSP, making repayments of £150 a month for 59 months, he did not commence it. Instead, he lodged a complaint with the scheme’s internal dispute resolution procedure.

After a review, the Cabinet Office concluded that Mr N had been given sufficient information to know the closing balance was higher than it should have been, as he had been sent a notional benefit statement in 2012 showing a repeat entry for the benefits transferred from one of his money purchase pension schemes.

It therefore ruled against him, and he referred the case to the Pensions Ombudsman. 

Repayment within 28 days

In his decision, the ombudsman confirmed that because it fell just within the six-year time limit established by the Limitation Act 1980, MyCSP was justified in seeking repayments from Mr N.

He did, however, find that MyCSP had caused Mr N “significant distress and inconvenience”, not least because Mr N had been in receipt of his pension for five years before being told about the overpayment.

MyCSP’s initial demand, which was that Mr N make his repayment in full within 28 days, contributed to this determination, he said.

As such, the ombudsman ordered MyCSP to pay Mr N £500 to redress the harm it had caused.

The ‘change of position’ defence

The ombudsman considered other possible defences that can be used by people in Mr N’s position, the most common of which is ‘change of position’. 

Angela Sharma, senior professional support lawyer at Taylor Wessing, told Pensions Expert: “A change of position defence in this sort of context is basically a defence that applies if the member has changed their position in a way that it would be unfair to require them to repay any money paid to them by mistake.

“Broadly, for this to apply the member has to show that they, in good faith, made financial commitments that cannot be reversed, based on their belief that what they were being paid was correct,” she explained.  

“They must also show a link between the overpayment and the financial commitment (‘because I thought I was getting X, I committed to buy Y’) and it mustn’t have been used to pay for something that the member already had to pay or which the member could be expected to sell to be able to reimburse the pension scheme.”

A change of position defence would be invalid if the member “had any suspicions that they were receiving an overpayment but chose not to investigate this”, Sharma continued.

“So what is key to establishing a change of position defence is producing the evidence to back that,” she said, but the ombudsman noted that the member was not able to provide such evidence in this case.

She added: “So the Ombudsman had nothing, it seems, to conclude that that defence had been made out.” 

Richard Meers, associate at Gowling WLG, noted the contrast with an earlier decision by the ombudsman in the case of a Mrs E, where he found “that the scheme was only partially entitled to recover the overpayments made”.

“In that case, the PO decided that although Mrs E had not relied on the lump sum overpayment to her detriment (since she had used the money to pay off her mortgage, improve her home and invest in her business), he was satisfied that she had spent the income in good faith and made irreversible expenditures that she would not otherwise have made,” he explained. 

“The PO also decided that Mrs E had acted in good faith in that case because the ombudsman recognised that the error in question was not easy to spot, Mrs E’s understanding of pensions was very basic and she had acted honestly.”

An avoidable problem

Eversheds Sutherland partner Gary Delderfield told Pensions Expert that the Pensions Ombudsman’s decision represents “a really good case study” of an overpayment claim, not least for the ombudsman’s consideration of the other defences that might have been available.

One of these is estoppel, which the ombudsman explained is a legal principle that provides that “if, by statement or action, a person causes another person to believe that a particular set of facts or circumstances are true, then they should not be allowed to draw back from those statements or actions if it would be unjust or unconscionable to do so”.

The ombudsman noted that the requirements for estoppel are similar to those for the change of position defence, but with two additional criteria. The claimant must be able to demonstrate they have relied to their detriment either “on a clear and unequivocal statement” or “on a mutual assumption of facts and law”, which Mr N was unable to do.

“It’s a really good summary of the law of overpayments,” Delderfield said.

Meers added that “good and accurate member communication could have stopped the problem emerging in the first place and could have made it more difficult for the member to maintain a change of position defence if any confusion had arisen”.

He said: “For trustees and administrators, the case is a reminder that where overpayments have gone on for years, asking for them to be repaid within weeks is not going to work — usually, the PO will want repayment to happen over the same sort of time period as the overpayments were made in the first place.”