The Deputy Pensions Ombudsman (DPO) has determined that a scheme must honour annual pension statements that overstated a member's pensionable service and benefits because it was reasonable for the member to have relied on them in her pension planning and she was unaware of the mistake. This was the case although the statements indicated the quotations were not guaranteed since they also stated that “Every effort has been made to ensure accuracy”, which was not the case.
Mrs Mather was a teacher and a member of the Teachers' Pension Scheme between 1974 and 1978. Shortly before she stopped working, she wrote to the Department of Education and Science (DES) to enquire about receiving a refund of her contributions and in March 1979 she sent the DES the relevant completed form. The DES issued her a refund of £747.48 but failed to alter its records to show that her four years and 108 days of service were no longer pensionable.
Mrs Mather returned to teaching in 1986 and resumed her scheme membership. Teachers' Pensions (TP) subsequently inherited Mrs Mather's incorrect service record from the DES and sent her annual benefit statements from 2005 that correspondingly overstated her pensionable service and benefits. Each statement also noted:
“The figures in this Statement are for illustration only. Every effort has been made to ensure accuracy, however this Statement confers no right to the benefits quoted.”
When Mrs Mather applied for retirement at her normal pension age on 1 August 2013, TP spotted the error and amended its records. The notification of benefits and standard covering letter it sent her on 13 July 2013 did not mention the error but showed the revised figures, including pensionable service of 27 years and 211 days and an annual pension of £13,536.70. Mrs Mather telephoned TP to complain and after further chasing, TP informed her about the error in her records but rejected her subsequent formal complaint in June 2014. Meanwhile, her benefits came into payment on 1 August 2013 at the revised, lower level.
Mrs Mather complained to the PO that TP should honour its overstated annual benefit statements or else pay her compensation. She submitted that based on the statements, she had decided not to defer taking her scheme pension and had moved to a cheaper house (after selling at a loss) in the expectation that her benefits would cover the lower mortgage payments, as well as pay off her bank loans. She also submitted that she had no memory of having requested the refund of contributions in 1979 as her husband had completed the form and she was suffering from post-natal depression at the time. Mrs Mather also complained that TP should have notified her immediately when it discovered the mistake in 2013 as this would have affected her decision whether to retire.
Among other things, TP submitted that it was entitled to assume data inherited from the DES was correct. It also submitted that it could only pay benefits calculated in accordance with the statutory regulations governing the scheme.
The DPO upheld the complaint.
A member could not receive larger benefits than she was entitled to unless she met certain strict criteria; namely, that she relied on the misinformation to her detriment, and there was no suggestion that she knew, or should have known, that a mistake had been made.
The DPO held that the evidence supported Mrs Mather's submission that she had based her retirement planning on the overstated benefits and could not reverse her decisions when TP told her in July 2013 that its benefit illustrations were incorrect.
The DPO was also satisfied that Mrs Mather was unaware of the mistake when she elected to retire. TP had admitted that it sent Mrs Mather incorrect statements from 2005 onwards, but it argued that the wording of the statements indicated that benefit levels were not guaranteed. This was true, but their yearly assurance that “Every effort has been made to ensure accuracy” was not. Although the DPO accepted that TP had inherited records from the DES and that it was not feasible to verify each member's record every year, in light of this it should not then have included wording that entitled Mrs Mather to expect that her details were accurately recorded. The DPO also accepted that Mrs Mather later forgot about the refund of contributions in 1979, given that her husband completed the relevant form in 1979 (as indicated by the handwriting) and the debilitating effect post-natal depression could have on memory.
Mrs Mather was therefore entitled to rely on the incorrect figures and it would be unfair for TP to reduce Mrs Mather's benefits, albeit that any remedy must take account of the benefit she had from the contribution refund in 1979.
The DPO also held that TP's communications following its discovery of the error in 2013 constituted maladministration. Its standard covering letter of 13 July 2013 failed to mention the mistake and Mrs Mather was obliged to contact TP several times to obtain full details. Although an earlier explanation would have made little financial difference as Mrs Mather had already irreversibly changed her position in 2013, it would have represented good practice.
The DPO directed TP to increase Mrs Mather's pension as if her period of service between 1974 and 1978 were pensionable. It must also pay arrears from 1 August 2013 (her retirement date) with interest, after subtracting an amount equal to the contributions refund plus interest on it from 1979. TP must also pay her £500 for the significant distress and inconvenience caused by its failings.
There is a general defence of “change of position” to claims for repayment of overpaid benefits where a member has so changed his position that it would be unfair to require him to repay the benefits paid to him in error.
The change of position defence will not be available where the member acted dishonestly, but conduct short of dishonesty may also be sufficient to prevent a member from relying on a change of position defence. Actions falling short of dishonesty or a failure to act in a commercially acceptable way may also prevent individuals from relying on the defence. For instance, members receiving benefits which far exceed previous quotations should have been aware that something was amiss and cannot then claim to have changed their position in good faith.
The PO has found previously that the test for the defence is whether a reasonable person in the position of the recipient (of the overpayment) should have realised the overpayment. An overpaid recipient should not benefit from being “heedless, whatever the reason”. In Webber (see above), the High Court upheld the decision of the DPO that the change of position defence was not available in an action for recovery of overpayments, where the member appreciated that the payments he was receiving may be overpayments and could have made a simple enquiry to check but chose not to do so.
In addition, in cases where an overpayment has been the basis of a complaint for maladministration, the DPO has held that the member must prove maladministration, as well as change of position.
The position may be quite fact-dependent, especially in cases brought before the PO, and the overpaid sum does not need to be significant for a change of position defence to be successful. In Dunne (PO-165), the PO held that a change of position had arisen in relation to the slightly improved day-to-day standard of living for a pensioner member who had received a monthly pension that was around £20 higher than he was entitled to under the scheme rules. The overpayment had been “subsumed” into his monthly income and was not recoverable. Nevertheless, when considering injustice, it is clear that a member's complaints of hardship will not generally be taken into account:
Generally speaking, the PO has in the past upheld claims to overstated benefits where a complainant has been able to prove the necessary detrimental reliance on an overstatement, and the reliance has been reasonable. It could be argued that in the Mather case, because the complainant received a refund of contributions, it must necessarily follow that it was not reasonable for her to rely subsequently on the overstatement made by the administrator. While many cases of overstatement arise from mistakes made by administrators alone, in this instance mistakes were made by both the administrator and the member herself. Perhaps a major factor contributing to the outcome of the complaint was the wording included by the administrator in its annual statements effectively vouching for their accuracy. This additional assurance seems to have conferred extra protection on the member.