Pension increase case – High Court confirms no six year limitation for recouping overpayments

The High Court has decided in the BIC UK Pension Scheme case that certain pension increases had been validly awarded, despite some formalities not having been carried out.  But what will be of wider interest is that the judge also decided that had the case gone the other way, the trustees would not be constrained by a six-year limitation for recouping overpayments.

What actually happened is quite complicated, but in essence, in the early 1990s, the trustees and employer in various meetings, resolutions and announcements decided to apply pension increases of the lesser of 5% per annum and the annual rise in the Retail Prices Index.  These increases were applied from April 1992 onwards, but since 2011 have been challenged by the employer in respect of that relating to pre 1997 service.

The trustees’ lawyers put forward a number of arguments in favour of the validity of the awards, including estoppel arguments and the operation of the equitable maxim “equity looks on that as done which ought to be done”.  These particular arguments failed.

However, the judge was able to decide that the new rules executed in 1993 did contain the requisite powers to authorise the disputed pension increases.  This depended on whether or not the 1993 rules did in fact come into force in 1990 (as they stated on their face that they did).  The judge decided that they did – they did not “impermissibly” re-write history, although they re-wrote it to a degree.  In other words they operated to retroactively validate the pension increase awards.

Helpfully (he didn’t have to), the judge also decided some points about how “overpaid” pensions could be recovered had he decided the other way on the validity of the pension increase awards.  He held that where there had been an overpayment then a six-year limitation period under section 5 of the Limitation Act 1980 would not apply.  Instead, under the legal principle of “equitable recoupment”, trustees can go back indefinitely to claw overpaid money back.

Recoupment can only be achieved by setting off against future pension instalments, not by sending the pensioner a bill.  Furthermore, in the event of a dispute about how this works it is not enough for a trustee to obtain a direction from the Pensions Ombudsman – such a direction must be backed up by a County Court order.

Comment

This is a fascinating and wide-ranging judgment that may indicate a willingness by the courts to validate decisions retroactively.  But it may be notable that this is a case where it was a benefit improvement under scrutiny.  Where worsening of benefit terms are involved as in Gleeds (see Pensions Bulletin/2014/17) formalities may be harder to overlook.

The comments about recovery help to provide some certainty about just how far trustees can go in clawing back overpayments – such as those that arise in GMP reconciliation work.  In theory the trustees can go back indefinitely, but every member needs to be dealt with on an individual basis and there may well be legal and Ombudsman processes involved.

Advisory Group publishes draft pensions on divorce guidance

The promised guidance by an independent advisory group on how pensions should be treated on divorce (see Pensions Bulletin 2017/38) has now been published.  Comprising two lengthy draft reports – the first on legal questions and the second on the assumptions used by experts when valuing pensions for the purpose of sharing or offsetting – the reports aim to set out best practice, having consulted with a number of experts.  This is in order to enable a more standardised approach across experts and cases to occur, ensuring better consistency in outcomes for divorcing parties and making these more predictable for individuals, lawyers, experts and judges.

This initiative follows on from a Nuffield funded study that found widespread lack of confidence amongst practitioners on the issue of pensions on divorce, poor quality pension disclosure on the court files and a substantial proportion of potentially unfair outcomes.

Consultation closes on 18 July 2018, following which final editions will be produced, hopefully by the end of 2018.  There will then follow another guide for non-specialists and the divorcing public.   

Comment

Pensions on divorce has been a misunderstood area for a number of years and from the cases we see different practitioners have different practices.  Consistency of approach would be very welcome if this guidance, when finalised, can find a practical middle ground.

Pension fraudsters net eight years in jail

Two men have been jailed for a combined eight years after scamming pensioners out of around £500,000.

Anthony Locke and Ray King from Dorset were sentenced to 5 years and 3 years respectively for convincing 16 victims to transfer a total of nearly £1 million into what turned out to be a fake occupational pension scheme.  The victims were told they could access the funds before they turned 55 and were credited with about half the money back straight away.

But rather than investing the balance, King and particularly Locke spent the other half of the money.  Now the victims have lost half their pension pots and could also face a hefty unauthorised payment tax liability from HMRC for accessing their pension funds too early.

Comment

This case highlights the true dangers of scams to pension scheme members.  The doubly whammy of money disappearing and penal tax rates can make pension liberation a very expensive decision.

The offences happened before HMRC tightened up on the rules governing the registration of pension schemes, but what many people may be asking as a result of this case is had the cold-calling ban been in place, would this scam have been stopped in its tracks?  Maybe not, as it seemed to work through a website from which people made contact with those now convicted.

Brewery faces prosecution for missing disclosure last orders

The Pensions Regulator is to prosecute the Samuel Smith Old Brewery (Tadcaster) and company chairman Humphrey Smith for failure to provide details of the company’s finances for an ongoing Regulator investigation into the funding of some of the brewery’s pension schemes.

The company and Humphrey Smith have been summonsed to appear at Brighton Magistrates’ Court on 15 May 2018 charged with neglecting or refusing to provide information and documents, without a reasonable excuse, when required to do so under section 72 of the Pensions Act 2004.

Comment

The Regulator’s section 72 power is very broad, as those on the receiving end will be aware, but right now, the only sanction available for non-compliance is to bring the matter to court.  This will change in future, with the Regulator obtaining the power, in a future Pensions Bill, to also levy fixed and escalating fines.

This Pensions Bulletin does not constitute advice, nor should it be taken as an authoritative statement of the law.  For further help, please contact David Everett at our London office or the partner who normally advises you.