Out-Law Guide | 11 Aug 2011 | 10:03 am | 1 min. read
There are a number of reasons why trustees may pay a member of a pension scheme too much - an administrative slip-up, a misunderstanding of what the scheme rules say or a delay in finding out that a member has died. What should trustees do when they discover what has happened?
Ask for the money back
When trustees have paid a member too much they must usually ask for the money back, even if the trustees are to blame for what has happened.
Trustees may decide not to ask for the money back if the legal and administrative costs involved are likely to exceed the amount they will actually recover from the member concerned. Trustees may take into account the potential distress the request for repayment may cause the member.
Trustees may reduce future pension payments to recover an overpayment, but they must give the affected pensioner sufficient notice before they do.
Members may have the right to keep the extra money if they spent more than normal because the overpayment led them to believe they could afford it. However, members must still pay back the money if, for example:
Trustees should generally allow members to pay back the money over a period no shorter than the period during which the overpayments were made. Members should give reasons if they do not think the proposed rates are reasonable.
Trustees cannot recover any payments made more than six years before the overpayment came to light.
Certain overpayments give rise to a tax charge because HM Revenue & Customs treats them as 'unauthorised payments'. Trustees should check the position with their lawyers.
All communications with members should be polite. The Pensions Ombudsman has criticised trustees for aggressively demanding money from members.
Compensation from administrators
Trustees should consider seeking compensation from their administrators if the overpayment was the administrators' fault. The trustees will first need to consider the potential costs of claiming compensation, the likelihood of success and the potential damage to the trustees' relationship with the administrators. The administrators are likely to insist on the trustees first trying to get the money back from the members concerned.