Pensions Insight: 11 December 2023 to 2 January 2024

Ombudsman round-up

TPO response and factsheet on CMG competent court case and first determination following the case 

TPO response

On 20 December 2023, the Pensions Ombudsman (TPO) responded to the CMG Court of Appeal judgment that TPO is not a ‘competent court’ for the purposes of section 91(6), Pensions Act 1995 in the context of recouping overpaid pension benefits. 

(Trustees are permitted to recoup mistaken overpayments from a member or beneficiary (even where the error was due to carelessness) where it is equitable for them to do so, and provided they comply with section 91(6) which requires that an enforceable court order is obtained in the event of a dispute over the amount.)

TPO is ‘disappointed’ with the CMG ruling and notes that the Department for Work and Pensions (DWP) is ‘supporting’ introducing changes to legislation to allow TPO to determine overpayment cases without the trustee having to enforce the determination in the County Court. 

Factsheet

TPO has produced a factsheet providing guidance on recovery in overpayment cases including the process in the County Court for enforcing a TPO determination (which is administrative in nature and does not involve the court considering merits). TPO’s determinations will include a schedule of the amount and rate of recoupment and a certified copy of the determination will be provided (to assist with the enforcement process).

First determination following CMG

TPO has also issued his first overpayments determination following the CMG case in which TPO partly upheld a member’s complaint against a trustee because, although TPO found that the trustee was entitled to recover the overpayment, it had started to recoup the overpaid without a competent court order. 

TPO confirmed that equitable recoupment of overpaid benefits is covered by section 91(6) (set-off)

The trustee (based on legal advice received) had argued that equitable recoupment did not fall under section 91(6) as a form of set-off (meaning a competent court order would not be required before recouping overpayments in the event of a dispute). The legal adviser said that this was because section 91 was intended to cover a member’s pension being impacted by matters outside the pension scheme and not where, as in this case, recoupment was being used as an ‘internal tool’ to pay the correct level of pension. 

However, TPO concluded that section 91 does apply in recoupment cases on the basis that: (1) the courts in the 2018 Burgess v BIC case and the CMG cases accepted that equitable recoupment was covered by section 91(6); and (2) previous TPO determinations had also taken this view; and TPO agreed that recoupment was covered.

Dispute as to whether whole or part of overpayment recoverable falls under section 91(6)

The trustee’s legal adviser also raised a further argument that the member was disputing his pension rights and entitlement to a particular benefit level rather than the amount to be recouped. As such, the member’s dispute was not in scope of section 91(6) which refers to ‘amount’. However, TPO did not agree. He confirmed that a dispute as to whether all or any part of an alleged overpayment is recoverable is a dispute under section 91(6) because the “amount of any set-off would be linked to the level of overpayment, which would be determined by reference to the individual’s correct entitlement…”. 

Trustee in this case had breached law but actions were not maladministration

TPO determined that the trustee was entitled to recover the overpayment. However, it had acted both in breach of section 91 and in breach of trust (by acting outside the scheme rules which were overridden by section 91 to the extent of any conflict) by recovering the disputed overpaid amount without an order of a competent court. 

TPO made no finding of maladministration against the trustee because it had acted in accordance with legal advice when recouping the overpayments. The position as regards the relevant administrator may have been different. However, TPO did not make any finding in this respect because, as he noted, the administrator was not a party to the complaint. Nevertheless, TPO noted that, generally following CMG, recouping overpayments without a court order should the amount or period of recovery be disputed will likely be both a breach of law and maladministration.

The trustee was directed to repay the amount deducted up to the date of the determination and to increase the member’s pension to the level it would have been had the overpaid benefits not been recouped in breach of section 91. However, the breach did not prevent the trustee from recouping the incorrectly recouped amounts from future pension payments provided that the approach taken is not ‘inequitable’ and complies with relevant legislation, namely section 91.

TPO also found that the administrator’s offer of £1,000 in recognition of any distress and inconvenience that the member may have suffered was adequate in the circumstances. 

Annual report and accounts reveal complaints increased by 17%

TPO’s annual report and accounts 2022/23 reveal that: 

• the number of complaints submitted increased by 17% from 6,216 in 2021/22 to 7,280 in 2022/23;
• there was a 49% increase from 2022/23 in the number of complaints that were closed;
• the three most common topics for closed pension complaints were: contributions, administration and pension transfers. The other topics in the top ten were retirement benefits, misquotes/ misinformation, auto-enrolment, pension liberation, membership, SIPP/ SSAS administration, and death benefits;
• TPO acknowledges that waiting times are too long and that reducing these will be a ‘key focus’ for 2023/24 – additional funding will help with this;
• of the 326 complaints determined by TPO, 51.2% were upheld or partly upheld.

TPR round-up

Updated cyber security guidance includes new reporting request 

On 11 December 2023, the Pensions Regulator (TPR) issued updated cyber security guidance that provides practical assistance for trustees as to how they can satisfy TPR’s expectations on cyber security which will be codified for the first time in its new general code of practice (expected to be in force from April 2024). 

The updated guidance includes a new request that trustees, advisers and scheme providers voluntarily report significant cyber incidents to TPR as soon as reasonably practicable. ‘Significant’ likely covers an incident that involves:

• a significant loss of member data
• major disruption to member services
• a negative impact on a number of other pension schemes or pension service providers.

As well as reporting to TPR, organisations may also be required to report a personal data breach to the Information Commissioner’s Office, report breaches of law likely to be of material significance to TPR, significant incidents to the National Cyber Security Centre and relevant events to Action Fraud, the national fraud and cybercrime reporting centre for the UK (Scottish organisations to Police Scotland).

Action: Schemes and service providers should note the TPR reporting request and, generally, ensure that their cyber security arrangements are fit for purpose, adequately protect against cyber risk and meet TPR’s expectations. 

Scheme return 2024 to include questions on fiduciary managers and investment consultants

TPR has confirmed that the 2024 scheme return will include questions on fiduciary managers and investment consultants following it taking over compliance monitoring from the Competition and Markets Authority in October 2022 (see our insight). The information that schemes will need to provide will include contact details of the providers, date(s) of appointment, whether appointed fiduciary managers(s) were done so through a competitive tender and details regarding investment consultants’ strategic objectives. 

Action: The scheme return notices will be issued from the end of January 2024 and completed returns must be submitted by 31 March 2024.

PASA’s jargon buster is updated

PASA (The Pensions Administration Standards Association) has published an updated jargon buster which explains central technology terms and how they are relevant to pensions. Since the update was produced in September 2021, technology has advanced including through the introduction of ChatGPT, a form of artificial intelligence large language model. The update focuses on generative artificial intelligence and large language models.

Action: It is thought that AI has the potential to materially impact how we use technology in the future. Schemes should keep up-to-date with developments in this area and how they might benefit from advances (and the necessary safeguards that will also need to be put in place).

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