Out-Law Guide 1 min. read
28 Oct 2019, 4:43 pm
Trustees may pay a member of a pension scheme too much because of an administrative slip-up; a misunderstanding of what the scheme rules say, or a delay in finding out that a member has died. So what should trustees do when they discover what has happened?
Ask for the money back
If you have paid a member too much you must usually ask for the money back, even if the trustees are to blame for what has happened.
You may decide not to ask for the money back if the legal and administrative costs involved are likely to exceed the amount the member is likely to pay back. You may take into account the potential distress the request for repayment may cause the member.
You may reduce future pension payments to recover an overpayment, but you must give the affected pensioner sufficient notice beforehand.
Members may have the right to keep the extra money if they spent more than usual because the overpayment led them to believe they could afford it. However, members must still pay back the money if, for example:
You 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.
You 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'. You should check the position with the scheme's lawyers.
All communications with members should be polite. The Pensions Ombudsman has criticised trustees for aggressively demanding money from members.
Compensation from administrators
You should consider seeking compensation from your administrators if the overpayment was the administrators' fault. You will first need to consider the potential costs of claiming compensation, the likelihood of success and the potential damage to your relationship with the administrators. The administrators are likely to insist on your first trying to get the money back from the members concerned.