The writing may not always be on the wall in terms of validating scheme amendments where historic documentation is scarce and in terms of recovering overpayments to pensions. An interesting case involving the BIC UK Pension Scheme (yes, “BIC” as in the pen that you may be holding) highlights a new way forward for trustees struggling with limitation periods and gives further hope to schemes wanting to rely on employer agreement to changes that took place in times of more informal recording keeping.
In Burgess v BIC, the judge firstly addressed the validity of amendments made to the pension scheme back in 1991 – a familiar topic for any trustees who have had to revisit whether their scheme properly equalised male and female benefits following the Barber decision. In Burgess v BIC, the trustees and the sponsoring company had agreed to increase the level of pensions in payment from April 1992 as part of a package of measures to reduce surplus in the scheme. However, in 2011, the sponsoring company challenged the validity of the increases made between 1992 and 1997. The trustees put forward a number of arguments regarding the validity of the amendments, which included a proposition that amendments which were invalid at the time they were made became valid due to a subsequent amendment which was retrospective in nature. The arguments were scheme-specific, but for the benefit of those who may want to look into this further, the judgment contains some interesting thoughts as to when it is permissible to re-write history.
To cut a long story short, the judge ruled that the pension increases were properly paid and could not now be stopped. However he went on to consider the following question: if the increases had not been properly paid, could the trustees have recovered the overpayments from the members?
Drawing a line through limitation
An estoppel argument was put forward for non-recovery but this argument fell at a number of hurdles.
The judge then went on to consider equitable recoupment (i.e. a reduction in future payments to reflect past overpayments) and this is where the comments get interesting!
It was agreed that the trustees had a duty to seek to recover overpaid sums from future payments. However, this was subject to Section 91(6) of the Pensions Act 1995, which allows a set-off in limited circumstances but says that, where there is a dispute as to the amount, the set-off must not be exercised unless the obligation in question has become enforceable under an order of a competent court (or an arbitrator, in Scotland).
Does the “order of a competent court” include a determination by the Pensions Ombudsman? The judge found that it does not. Therefore, if the Ombudsman makes a determination that the trustees of a scheme can recover an amount by virtue of equitable recoupment, but a member is unwilling to accept the consequences of exercising the right of recoupment, then the trustees would have to apply to court to enforce the determination. Of course, trustees would have to consider the inevitable cost of a court application before taking this course of action.
Finally, the judge went on to consider whether a six year limitation period applied, in line with Section 5 of the Limitation Act. Applying his red pen to a Pensions Ombudsman determination on this point, the judge stated that equitable recoupment is not a restitutionary claim for unjust enrichment, it is “an equitable self-help remedy” which involves the adjustment of future payments not a claim for repayment of monies already paid. On this basis, the Limitation Act does not apply.
Individual members may still fall back on an estoppel defence or laches (i.e. that the delay in applying a remedy bars it from being granted). However, this is not an issue that the judge could decide on a group basis, it would have to be dealt with on a member by member basis.
Highlighting the difficulties
This case opens up a potential avenue for trustees who thought that they were barred by limitation from recouping overpayments. However, trustees need to reflect carefully on the timing and merits of obtaining a court order (either before or after the Ombudsman becomes involved) alongside the costs which would be incurred (potentially recoverable from the member) and the possibility of individual members claiming a defence.
There is a lot to consider. I would be happy to talk through the issues with any trustees who face such a dilemma.