This update covers the legal position in England and Wales.

In the case of Mrs G (PO-27022), the Pensions Ombudsman has held that a member could not succeed with a "change of position" defence to a claim for recovery of an overpayment where the member had turned a "Nelsonian" blind eye to the overpayment and had therefore not acted in good faith.

Factual background

From 1971 Mrs G was employed in the education of children with special needs.  When responsibility for this area passed to the education sector in April 1971, members in Mrs G's role were permitted to opt to remain members of the NHS Pension Scheme rather than joining the Teachers' Pension Scheme (TPS).  Mrs G opted to do this, but the TPS kept a record of her service, as it generally did for individuals who were eligible for the TPS but had joined a different scheme.

On 31 March 2001, Mrs G ceasing to be eligible for membership of the NHS Pension Scheme due to a change in her role.  Mrs G opted to join the TPS with effect from 1 October 2006.  Around this time, Mrs G started to receive benefits from the NHS Pension Scheme for her service between 1971 and 2001.  

In February 2013 TPS updated its computer system.  This change led to errors in the records of members such as Mrs G whose service from 1971 to 2001 showed up as pensionable on TPS's records.  In March 2013, TPS issued a statement to Mrs G confirming her reckonable service was 7 years 48 days.  On 12 June 2013, TPS provided Mrs G with a benefit statement in anticipation of her retirement.  This erroneously showed her pensionable service as 34 years and 143 days, entitling her to an annual pension of £18,697 and a lump sum of approximately £56,000.

Following receipt of the benefit statement, Mrs G contacted Teachers' Pensions on a number of occasions explaining the background to her employment and why she thought the figures in the benefit statement were overstated. She also contacted her former employer. Teachers' Pensions raised a query with Mrs G's employer regarding her pensionable service, but this was not resolved.  On 1 September 2013 Mrs G retired and her pension, calculated on the basis of the erroneous statement, was put into payment.

In 2017, Teachers' Pensions informed Mrs G that she had been overpaid by £96,320 and requested full repayment.  Mrs G argued that she had a "change of position" defence, having spent the overpayment on expenditure she would not otherwise have incurred.  She produced an itemised list of this expenditure. 

Relevant law

The starting point in pensions overpayment cases is that the scheme is entitled to recover the overpayment.  However, a member may have a "change of position" defence to a claim if the member has so changed his or her position that it would be inequitable to require repayment.  A change of position defence can only succeed if the member received the overpayment in good faith.

Ombudsman's decision

The Ombudsman held that Mrs G did not have a change of position defence because she had not received the overpayment in good faith.  The Ombudsman said it was important to appreciate that bad faith was not synonymous with dishonesty.  If the recipient had grounds for believing that a payment had been made in error, but could not be sure, the defence would not be open to him or her, ie the recipient could not turn a "Nelsonian" blind eye.  The question to address was whether, at the time Mrs G incurred the expenditure, she knew or appreciated that she may not have been entitled to it and still took the risk.  The Ombudsman noted that:

• Mrs G was aware that the pensionable service she was being awarded overlapped with her NHS Pension Scheme service in relation to which she was already receiving a full pension;
• Mrs G understood the complication caused by the concurrent availability of membership of two pension schemes due to her specialist employment.
• in the years prior to 2013, Mrs G's pension estimates from TPS had shown the correct length of service and pension entitlement.  She had not doubted the correctness of those statements at the time; and
• in the final telephone call with Mrs G, Teachers' Pensions had not finished its investigation and was still waiting to hear from Mrs G's former employer.

The Ombudsman held that Teachers' Pensions was entitled to seek recovery of the overpayment.  However, he awarded Mrs G £3000 for distress and inconvenience.  He considered that an "exceptional" award was appropriate given the long-term impact the payment would have on Mrs G and the repeated failure by Teachers Pensions to chase Mrs G's employer for information or to update Mrs G.  The Ombudsman said that he would ordinarily expect a repayment plan to be at least as long as the time period that the overpayment accrued and that he would expect Teachers' Pensions to be generous in the length of time it allowed for repayment, especially given its role in allowing the overpayment to accrue.

Our thoughts

It is fairly common for change of position defences to fail in overpayments cases, but this is generally because the Ombudsman concludes that the member would have incurred the expenditure regardless of the overpayment.  This case is more unusual because the change of position defence failed on good faith grounds.  The Ombudsman's exceptional award of £3000 shows that he clearly had considerable sympathy for Mrs G.   Where a potential overpayment is identified, the Ombudsman will expect scheme administrators to investigate it swiftly to avoid any further overpayments accruing.