Overpayments to Pension Scheme Beneficiaries
Remedies and Defences

Andrew Simmonds QC, 5 Stone Buildings
(taken from Isssue No 11 –  April   2000)



Consider the following hypothetical set of facts:

The Millennium Bug plc retirement benefits scheme (`the Scheme`) is an exempt approved final salary scheme. There are 10,000 members comprising 5,000 pensioners, 2,500 deferred pensioners and 2,500 actives. Payment of benefits is administered by Apocalypse Pension Consultants Limited (`Apocalypse`). In July 1999 the sponsoring employer, Millennium Bug plc, goes into insolvent liquidation. This triggers a winding up of the Scheme. In the course of the winding up it emerges that defects in Apocalypse’s computer software have led to final pensionable salaries of pensioners and deferreds being overstated by 100% in all benefit statements and calculations which have been issued and made for the previous ten years. The Scheme is now substantially in deficit.

What should the Trustees do?

On a superficial level the answer is obvious: the Trustees must try to remedy the shortfall by recovering as much as possible of the monies overpaid to members and by ensuring that future payments are restored to their correct level. (In principle, the position is no different if the Scheme remains in surplus notwithstanding the overpayments. However, there is much greater room for manoeuvre. The Trustees might agree with the Employer to augment the benefits of  those overpaid up to the `incorrect` level in order to avoid the potentially large expense and administrative nightmare of trying to restore the status quo ante.) From whom can such recovery be made? Clearly, attempts to recover the statu-tory debt on the Employer are likely to be largely futile. The two other options are:

(1) to seek recovery from overpaid pensioners;

(2) to pursue a claim for breach of contract and/or negligence against Apocalypse.

One of the issues which arises from pursuing the latter option is addressed below. However, the principal concern of this paper is to deal with the difficulties faced by trustees in pursuing scheme members.

This subject can be conveniently examined under the following headings:

(A)     Past overpayments to pensioners

(1) What claim do the Trustees have?

    1. Can it be enforced by(i) action
    2. (ii) recoupment from future instalments?
    3. What defences are available to overpaid members?
  1.   What defences are available to members?

(B) Future overpayments to pensioners

(1) Are the Trustees entitled to reduce future payments to the correct level?

(2) If so, do overpaid members have any countervailing claim for compensation?

(C) Overquotations to deferred pensioners

(1) Are the Trustees entitled to reduce benefits to the correct level when they come into payment?

(2) Do the deferreds have any claim for compensation?


(D) Practical problems

How can the Trustees most effectively manage the issues which arise from overpayments to thousands of beneficiaries? How can the Courts help?

(E) Claim for damages against Apocalypse

(F) Conclusions

  1. Past overpayments to pensioners

As a result of the defects in Apocalypse’s software, pensioners have been receiving double the pension to which they were entitled under the rules of the Scheme. Prima facie the Trustees have a restitutionary claim to recover the amount of the over-payments from each pensioner as money had and received. The overpayments were made under a mistake of fact, although following the abrogation of the rule preventing recovery for a mistake of law, the nature of the mistake is no longer material. – Kleinwort Benson Ltd v Lincoln City Council[1999] 2 AC 349

What defences might be available to overpaid pensioners? There are four candidates which require consideration:

(1) negligence on the part of the Trustees

(2) limitation

(3) estoppel

(4) change of position.

(1) Negligence on the part of the Trustees

Can it be argued that the overpayments are irrecoverable because the Trustees were either indirectly responsible for the error or failed effectively to monitor the administration of the Scheme so that discovery of the overpayments was delayed? In the recent case of Scottish Equitable plc v Derby (30 September 1999), which is considered in more detail below, it was argued that the Court had a residual discretion to refuse relief where the party seeking repayment had been careless. Harrison J rejected the argument. He was plainly correct to do so: the remedy in restitution is not discretionary and it was established as long ago as 1841 that carelessness on the part of the payer is no defence to a claim for repayment of money paid under a mistake – Kelly v Solari (1841) 9 M&W 54.

(2) Limitation

The Trustees are faced with overpayments going back up to ten years. Can overpaid pensioners rely on the Limitation Act to restrict recovery, at worst, to six years’ over-payments? The claim in restitution is, in principle, subject to a six-year limitation period[4]- Kelly v Solari (1841) 9 M&W 54. However, since the Trustees’ claim will be `for relief from the consequences of a mistake` the six-year period does not start running until the mistake is discovered or should have been discovered: s.32(1)(c) Limitation Act 1980. This provides at least some form of counterbalance to the rule that the payer’s negligence does not prevent recovery. If the Trustees failed to exercise reasonable diligence in their monitoring of the Scheme, recovery may be limited by the Act.

(3) Estoppel

Until the recognition by the House of Lords in 1991 – Lipkin Gorman v Karpnale Ltd (see below). of a general defence of change of position, the only chance the payee had of resisting repayment on the grounds of unfairness was to plead an estoppel. The interrelationship between these two defences is considered further below. Suffice it to say for the present that the defence of estoppel remains alive, if not altogether well, in England and Wales so examination of its elements remains of some practical importance.

The leading case is Avon County Council v Howlett [1983] 1 WLR 605. A teacher who was injured at work received sick pay from his local authority employer at a rate higher than that provided for in his contract of employment. He queried the level of payment with council officials but was told that they were correct. By the time the mistake was discovered by the council, the teacher had received overpayments totalling about £1,000. In the meantime he bought a new suit and a second-hand car for about £500 which he would not have done but for the overpayments. The elements which had to be established for an estoppel defence to succeed were identified by Slade LJ:

(a) the claimant must have made a representation of fact which led the defendant to believe that he was entitled to treat the money as his own;

(b) the defendant must have, bona fide and without notice of the claim, changed his position as a result; and

(c) the overpayment must not have been primarily caused by the fault of the defendant.

The third requirement seems somewhat harsh. If the payer’s right of recovery is not precluded by negligence, however gross, why should the payee’s estoppel defence, if otherwise established, fail merely because he was marginally more careless than the payer? This requirement is also apt to result in costly and acrimonious disputes as to relative fault. Subject to that element, it will be seen that the requirements for an estoppel defence are broadly comparable to those for change of position but with the extra requirement of a representation of entitlement.

The main importance of Avon County Council v Howlett is that it establishes the main practical point of distinction between estoppel and change of position. The Court of Appeal held that the defence of estoppel prevented recovery of the entire £1,000 even though the defendant had only changed his position by spending part of it. The defence operated on an all or nothing basis and not pro tanto – as will be seen, change of position operates entirely pro tanto and is therefore a much more discriminating defence. This followed from the fact that estoppel by representation is a rule of evidence which prevents the claimant from asserting and proving what the defendant’s true entitlement is. The members of the Court were not entirely happy with this position for two reasons. First, the parties had contrived a test case on what was in fact a hypothetical basis. The evidence before the first instance judge established that the defendant had actually spent the entire £1,000. However, the defendant (at the insistence of his union which was funding his defence) refused to amend his pleaded case that he had only spent part. Secondly, they recognised that the inflexible application of the all or nothing approach could well work injustice in practice. All three members of the Court left open the possibility that the Court might prevent a payee making a windfall profit. However, the mechanism by which this could be achieved seems totally unclear. Slade LJ suggested the possibility that the Court, in circumstances where a large mistaken payment had been made and the change of position was small, might in the exercise of its discretion exact an undertaking from the payee to refund the balance. This surely cannot be right. The defence of estoppel is not discretionary so the Court has no power to exact any undertaking. Moreover, how great does the disparity between payment and change of position have to be for this exceptional course to be taken? There is no sensible answer to that question. To adopt this approach would create complete uncertainty.

As mentioned above, the other principal distinguishing feature of the defence of estoppel is the requirement for a representation by the payer that the payee is entitled to the money. How can such a representation be established? Plainly there was no difficulty in Avon County Council v Howlett as the defendant specifically queried the level of payment with his employer. But assume in our hypothetical case that no such query has been raised with the Trustees or Apocalypse by any of the overpaid pensioners. It has been said that the mere fact of payment does not entail any representation of entitlement: Goff & Jones: The Law of Restitution (5th Ed.) p.212. But this must depend on the identity of both payer and payee. If the relationship between payer and payee is such that there is a legal obligation on the payer to ascertain the payee’s entitlement correctly, then the fact of payment should be sufficient. In Avon County Council v Howlett Slade LJ appeared to recognise that the relationship of employer and employee might be so classified. The same should apply as between the trustees and members of an occupational pension scheme. The trustees have a statutory obligation to provide members with accurate information about their benefit entitlements (Occupational Pension Schemes (Disclosure of Information) Regulations 1996 (SI 1996/1655) especially Reg 5 and Schedule 2) and a residual obligation in equity to provide information may also exist – Hamar v Pensions Ombudsman [1996] OPLR 55, 65. In any event, members can rely not merely on the trustees’ duty to provide accurate information but also on the benefit statements received as actual representations of the amount of their entitlements. In practice, members of a pension scheme should have little difficulty in establishing the necessary representation of entitlement.

(4) Change of position

The development of this defence remains in its infancy. Since the House of Lords first recognised it as a defence available under English law in Lipkin Gorman v Karpnale Ltd [1991] 2 AC 548, it has been relied on in only a handful of reported cases. Of these, only two have any connection with the world of pensions. The first, Hillsdown Holdings plc v Pensions Ombudsman [1997] 1 All ER 862 at 904, concerned an unlawful payment of surplus to the employer. The second, Scottish Equitable v Derby, concerned a personal pension policy. The application of the defence in the context of overpayments to members of occupational schemes therefore remains uncertain for two principal reasons:

(1) the requirements for establishing the defence were left in a fluid state by the House of Lords in Lipkin Gorman and have not crystallised much since; and

(2) there has been no exploration of the issues which arise when the overpayment may affect not only the interests of the payer and payee but also those of thousands of other members of an occupational scheme.

In Lipkin Gorman the House of Lords refused to define the precise scope of the defence in abstract terms but preferred to let it develop on a case-by-case basis. The nearest there is to a formulation of the defence appears in the speech of Lord Goff – at 580E – but it is clear from the context that this can only be treated as a broad framework:

`…the defence is available to a person whose position has so changed that it would be inequitable in all the circumstances to require him to make restitution, or alternatively to make restitution in full. I wish to stress however that the mere fact that the defendant has spent the money, in whole or in part, does not of itself render it inequitable that he should be called upon to repay, because the expenditure might in any event have been incurred by him in the ordinary course of things`.

Against that background it is possible to identify what appear to be the principal issues which arise as to the scope of the defence and to suggest some answers to the main questions:

(a) Mala fides or fault on the part of the payee

It is clear that the defence is only available to a payee who changes his position in good faith – Lipkin Gorman per Lord Goff at 580C. Thus, turning to our hypothetical problem, overpaid pensioners must show that they were not aware of the Trustees’ error when they received the overpayments and when they spent them (or otherwise changed their position). Whether they succeed will dependinter alia on the scale of the error and the nature of any contemporaneous communications between payer and payee. Benefit statements received by pensioners will have specified their final pensionable salary at twice its correct level. Arguably, only the most apathetic or careless recipient will have failed to notice that something was wrong. It has been suggested in some quarters that the defence should be unavailable if the payee was negligent even though actingbona fide. This would be both contrary to the current weight of authority and unjust. A variation on this approach was adopted in the American Law Institute’s Restatement of the Law of Restitution (1937) at para.142 which requires that the payee be `no more at fault` than the payer. This equates with the third requirement identified in Avon County Council v Howlett for establishing the defence of estoppel and should be rejected for the reasons given in paragraph 9 above.

(b) Narrow or wide view of the defence?

Burrows: The Law of Restitution (1993) pp.425-428 argues that the defence could be applied in a narrow or wide way. The narrow approach requires the payee to have changed his position in reliance on the validity of the payment. The wide approach allows the defence to operate whenever the payee’s position has changed in such a way that restitution would be inequitable. The difference in practice is best demonstrated by unforeseen events. If the payee receives a mistaken cash payment which is then stolen or which is destroyed in a fire at his home, the defence would be available only on the wide view. It is suggested that the wide view is plainly the more just and is entirely in accordance with Lord Goff’s statement of principle.

(c) Causal link

Even on the wide view, it seems plain that there must be a causal link between the mistaken payment and the change of position. It is insufficient if the payee’s difficulties in making restitution are wholly unconnected with the payment.

It is time to deal with Scottish Equitable v Derby [2000] PLR 1.. The facts were in summary as follows: in 1988 Mr Derby invested £90,000 from a redundancy payment in a pension policy with Scottish Equitable. In 1990 he took early retirement benefits in the form of a lump sum and residual single life pension. In 1995 Scottish Equitable, mistakenly overlooking the fact that early retirement benefits had been and were still being paid to him, told Mr Derby that he still had a fund of just over £200,000. Mr Derby took a tax-free lump sum of £51,000 and used the balance to purchase an annual pension from the Norwich Union. His actual residual entitlement from Scottish Equitable was a fund of £30,000 to provide his GMP. Before the error came to light Mr Derby disposed of the money as follows:

(a) he used £42,000 to redeem two-thirds of the building society mortgage on his home;

(b) he used £150,000 to purchase the Norwich Union pension;

(c) he spent the £9,000 balance of the lump sum and the income from the Norwich Union pension on `modest` (but unspecified) improvements to his lifestyle.

Scottish Equitable claimed restitution. Before the trial Mr Derby’s marriage broke down and he argued that he would not be able to survive if he had to repay Scottish Equitable in view of his increased financial commitments resulting from the separation. His health was also deteriorating.

Harrison J, although initially (and perhaps understandably!) sceptical, decided that Mr Derby had acted bona fide and was not aware of Scottish Equitable’s error either when he received the money or when he spent it. He held that:

(i) the £42,000 used to partly redeem the mortgage had to be repaid: early discharge of an existing debt did not amount to a change of position.

(ii) since the Norwich Union was prepared to unwind Mr Derby’s policy and his application of the money overpaid was therefore reversible, £120,000 (i.e. the £150,000 invested less the £30,000 residual fund) had to be repaid.

(iii) the £9,000 balance of the lump sum was not repayable.

(iv) no allowance could be made for the general financial difficulties facing Mr Derby as a result of his marital breakdown because they were in no way connected with the receipt of the mistaken payment.

(v) accordingly the defence of change of position was available to Mr Derby only in respect of the £9,000 In many ways the real sting in the judgment from Mr Derby’s point of view came in the last paragraph. He was ordered to repay the £161,000 together with interest totalling £35,000. It is wholly unclear where Mr Derby was expected to find this from.

(vi) in reliance on the obiter dicta in Avon County Council v Howlett, it would be unconscionable to allow Mr Derby to rely on a defence of estoppel when the overpayment was £170,000 and his change of position only related to £9,000 of that sum.

It will be necessary to return to a number of aspects of Harrison J’s judgement below. The point of immediate relevance is his clear acceptance of the need for a causal link between the mistaken payment and the change of position.

(d) What actions by the payee will count as a change of position?

The following have been considered:

(i) Expenditure on consumables or services: e.g. food and drink, tickets for the theatre or a football match, holidays. All these will found a defence as no enduring asset is created by the expenditure. At the other extreme, if the payee places the payment on deposit at his bank, there will obviously be no defence. One of the curious features of the defence of change of position is that it can operate most favourably in the case of payees who manage to combine apathy or carelessness in checking their entitlements with profligacy in their spending habits.

(ii) Purchase of assets: e.g. a house, a car, quoted securities. What little authority there is suggests that the defence will only be available as regards the excess over the resale value (if any) of the asset. (If the money is invested in a business which fails, the defence will apply to the entire amount Lipkin Gorman per Lord Templeman at 560C). This is consistent with Harrison J’s treatment of the investment with the Norwich Union in Scottish Equitable v Derby. However, the position may be different if the asset in question is purchased as a replace-ment for one which is discarded. In RBC Dominion Securities v Dawson (1994) 111 DLR (4th) 230 the Newfoundland Court of Appeal held that the defence applied where a mistaken payment had been spent on replacement furniture and no attempt was made to assess its resale value. This can be justified on purely pragmatic grounds: credit would have to be given to the payee for the value of the discarded furniture and the calculation becomes unnecessarily complicated.

(iii) Discharge of existing debts: the defence is not available. See Scottish Equitable v Derby (mortgage redemption) and RBC v Dawson (payment of a Visa account).

(iv) Gifts: the availability of the defence where a gift is made to charity was recognised by Lord Goff in Lipkin Gorman at 579F. `…the defence is available to a person whose position has so changed that it would be inequitable in all the circumstances to require him to make restitution` (emphasis added). However, there is no need for the gift to be charitable provided it has been effected.

(e) Anticipatory reliance

Is the defence available if the payee, having been informed of the proposed payment and its amount, changes his position in reliance before the payment is actually received? In South Tyneside MBC v Svenska International plc [1995] 1 All ER 545 (an interest rate swaps case) Clarke J held that, as a general rule, the change in position had to occur after receipt of the payment. That accords with the American Restatement para.142(1): `if, after receipt of the benefit, circumstances have so changed…`. However, it can lead to absurd results. Compare the following examples (adapted from those given by Jules Sher QC in argument in the South Tyneside case at 564g):

(i) Trustees inform a member who is approaching retirement that he will be entitled to a lump sum of £100,000. His true entitlement is £50,000. The member then immediately spends £50,000 from his savings account on a round the world cruise which he would not have spent but for the promised lump sum. On retirement he receives the £100,000 lump sum and uses half to restore the previous balance in his savings account.

(ii) Trustees give the member the same mistaken information but the member does nothing before receipt of the £100,000. He then spends £50,000 of the lump sum received on the cruise.

If anticipatory reliance is insufficient, the defence will fail in (i) but succeed in (ii). As Jules Sher rightly submitted, there is no sense in this. Anticipatory reliance should be permitted. It is essential that it should be if, as is argued below, the defence of estoppel should no longer be recognised in cases of payment under a mistake.

(f) Effect on third parties

The authorities on change of position attempt to balance the competing interests of payer and payee. They do not cover situations in which the success or failure of the defence may have a significant effect on the interests of innocent third parties. This issue is of particular relevance in our hypothetical case. Those who have received overpayments, the pensioners, will have priority over other classes of member under the Scheme’s winding-up provisions. If defences of change of position succeed, the pensioners will not only receive their full entitlements but retain the overpayments at the expense of other members whose benefits will be abated. Depending on the extent of the deficit, some members may receive nothing. This would appear to be grossly unjust. It is suggested that the formulation of the defence in Lord Goff’s speech in Lipkin Gorman[18] is sufficiently wide to permit the interests of other members to be taken into account. `…the defence is available to a person whose position has so changed that it would be inequitable in all the circumstances to require him to make restitution` (emphasis added). In the circumstances under discussion the defence should fail.

Conflict between estoppel and change of position

In many cases of overpayment by mistake, and in particular those arising in a pensions context, the payee will at present have a choice between the defences of estoppel and change of position. In RBC v Dawson the Newfoundland Court of Appeal held that, in such cases, the defence of estoppel was no longer available in that jurisdiction. As Harrison J rightly recognised in Scottish Equitable v Derby, the position is not the same here. The House of Lords in Lipkin Gorman did not purport to abolish the defence of estoppel. There are however strong grounds for doing so. The change of position defence is much more flexible in terms of its constituent elements and it operates pro tanto so that no windfall benefit is retained by the payee. It also appears to be capable of taking into account adverse effects on the interests of third parties whereas the estoppel defence as formulated in Avon County Council v Howlett probably cannot. In the light of recent developments, estoppel no longer has anything to recommend it.

In the Scottish Equitable case Harrison J held that, on the facts, the defence of estoppel was in principle also available to Mr Derby. However, he held that he was, in effect, able to apply it pro tanto as it would be clearly inequitable to allow Mr Derby to keep the entire £170,000 overpayment when he had only changed his position as to £9,000. This was a perfectly understandable but wrong decision. The dicta in Avon County Council v Howlett merely left open the question of how to deal with large windfall benefits. They provided no authoritative basis for departing from the all or nothing approach and such a departure cannot be justified as a matter of legal principle (see paragraph 10 above). In truth, the facts of Scottish Equitable v Derby demonstrate clearly why the defence of estoppel should no longer be permitted to operate in this sphere.


The discussion so far has been in the context of the Trustees seeking recovery of overpayments through the courts. There are obvious practical and economic problems associated with that approach. It would be much more convenient if the Trustees could avail themselves of a self-help remedy, i.e. recouping the over-payments out of future instalments of pension. In principle, such a remedy has long been available –( Re Musgrave [1916] 2 Ch 417)- although difficult questions arise as to the rate at which trustees ought to effect recovery (Re Musgrave at 425). Could the trustees simply stop paying someone’s pension until the overpayment is fully recovered or is a more gradual approach required?) and it is not a means of evading defences of estoppel or change of position as recoupment cannot be effected if it would be `inequitable` – Re Musgrave at 425. However, in the case of occupational schemes, it appears that this option has been closed off by the Pensions Act 1995. s.91(1) provides:

`Subject to sub-section (5), where a person is entitled, or has an accrued right, to a pension under an occupational pension scheme –

(a) the entitlement or right cannot be assigned, commuted or surrendered,

(b) the entitlement or right cannot be charged or a lien exercised in respect of it, and

(c) no set-off can be exercised in respect of it,

and an agreement to effect any of those things is unenforceable`.

s.91(5) provides:

`In the case of a person (`the person in question`) who is entitled, or has an accrued right, to a pension under an occupational pension scheme, sub-section (1) does not apply to any of the following, or any agreement to effect any of the following –

[(a) to (c) are not relevant]

(d) Subject to sub-section (6), a charge or lien on, or set-off against, the person in question’s entitlement, or accrued right, to pension (except to the extent that it includes transfer credits other than prescribed transfer credits) for the purpose of enabling the employer to obtain the discharge by him of some monetary obligation due to the employer and arising out of a criminal, negligent or fraudulent act or omission by him,

(e) Subject to sub-section (6), except in prescribed circumstances a charge or lien on, or set-off against, the person in question’s entitlement, or accrued right, to pension, for the purpose of discharging some monetary obligation due from the person in question to the scheme and –

(i) arising out of a criminal, negligent or fraudulent act or omission by him, or

(ii) in the case of a trust scheme of which the person in question is a trustee, arising out of a breach of trust by him`.

Members who receive overpayments as a result of mistakes by the trustees and/or administrators of a scheme will not generally fall within s.91(5)(d) or (e). Accordingly, s.91(1) prohibits recoupment if that amounts either to the exercise of a `lien` in respect of the payee’s entitlement or to the exercise of a `set-off` in respect of it. It is suggested that recoupment does fall within the scope of one or other (or both?) of those expressions and is thus prohibited. However, there is no good reason for such a blanket prohibition, particularly when recoupment would provide a cost-effective remedy and the interests of other scheme members may otherwise be adversely affected. s.91 should be amended so as to give the Court a discretion to permit recoupment if it would be just to do so in all the circumstances.

  1. Future overpayments to pensioners

Now that the overpayments to Millennium Bug pensioners have come to light, can the Trustees reduce future instalments of pension to the correct level? At first sight, the answer might appear obvious: of course they can. The position is completely different to that obtaining in relation to recovery of past overpayments. The Trustees need only pay what the rules require them to pay. The onus is on the pensioners to establish a legal right to continued payments at the higher level. No such right arises under the Scheme rules and estoppel/change of position operate only as defences. To use the old maxim, they act as shields and not swords.

But it may not be that simple. There are three ways in which overpaid pensioners might seek to establish a right to continue receiving excess benefits or at least a similar financial result:

(1) Estoppel and change of position as quasi-causes of action

It may be that the `shield not a sword` mantra can be disposed of simply by judicious pleading. This was in effect permitted by the Court of Appeal in the context of estoppel by convention in Amalgamated Investments v Texas Commerce International [1982] QB 84 – see per Lord Denning at 122A and Brandon LJ at 131-132. Brandon LJ dismissed an objection based on the old maxim as largely a matter of semantics. Put simply, in the present context, an overpaid pensioner’s particulars of claim would assert his entitlement to payment at the higher rate; the Trustees’ defence would plead the Scheme rules and the claimant’s actual final pensionable salary and deny entitlement; the pensioner’s reply would plead the facts necessary to support an estoppel or change of position defence and assert that the Trustees were precluded from questioning his entitlement.

If this approach is permissible in the context of estoppel by convention, there seems no reason why it should not be equally applicable in cases of estoppel by representation. However, it may be going a stage too far to apply it to change of position. The logic of the strategy holds good in cases of estoppel: the Trustees are precluded by their representation from asserting and proving the pensioner’s true entitlement. But change of position does not operate as an evidential bar. It arguably has no application at all unless the payee is subjected to a claim for recovery.

Apart from any legal difficulties, the overpaid pensioner will also find it much harder to establish a change of position on the facts than he would if defending a claim to recover past overpayments. Ex hypothesi the money has not been spent. It might be said that he has raised his standard of living in reliance on continued receipt of the excess benefits. But in the absence of any binding financial commitments this would probably be insufficient as it is reversible without loss (except disappointment). Nevertheless, one can envisage circumstances in which the Court’s sympathy may be engaged. For example, an overpaid pensioner encourages his teenage son to apply for a University course in veterinary science on the strength of his promise (which, it is to be assumed, is not legally binding) to fund his living expenses for the six-year duration of the course. The pensioner would not have made the promise but for the overpayment. Without the promise the son would have obtained paid employment instead of going to University. Will the pensioner succeed in establishing a right to receive excess benefits throughout the six-year period?

(2) Contractual analysis

Depending on the facts, an overpaid pensioner may be able to establish a contractual entitlement as against the Trustees to continue receiving the excess benefits. If a retiring member requests a quotation for various options open to him under the rules and he accepts one of the quoted options, arguably a contract arises between the member and the Trustees. Although it might be said that the contractual analysis is unnecessary and inappropriate given the trust law framework governing pension schemes, it has found judicial support: compareMiller v Stapleton [1996] 2 All ER 449, 459 (cash equivalents) and Nicol & Andrew Ltd v Brinkley [1996] OPLR 361 (service credits on transfer between schemes).

If this analysis prevails, the Trustees’ riposte will be to contend that the contract was vitiated by the parties’ common mistake that the quoted benefits represented the member’s entitlement under the rules. A similar argument (advanced by the members) succeeded in Spooner v British Telecommunications plc (Parker J; 12 October 1999).

(3) Claim for compensation against the Trustees

Even if the overpaid pensioner has no right to insist on the continued payment of excess benefits as such, he may have a claim for breach of duty against the Trustees, viz.

(a) Hedley Byrne claim Hedley Byrne v Heller [1964] AC 465

The pensioner could argue that his benefit statement constituted a negligent misrepresentation upon which he relied to his detriment and the Trustees are liable to him in damages. In principle, such a claim should lie but the claimant pensioner will have to establish a sufficient change of position on the facts and the quantum of any damages awarded will be limited to the extent of the detrimental reliance (i.e. in many cases the cost of reversing it) and will not be equivalent to the value of continued receipt of the excess benefits.

(b) Breach of duty to inform

This appears more doubtful. The remedy for a breach of the Disclosure Regulations is an application to the Court for a mandatory compliance order under s.115 Pension Schemes Act 1993 – and OPRA can impose penalties on the Trustees under reg.11. This strongly suggests that the Court would not recognise a claim for damages for breach of statutory duty. The pensioner would have to claim equitable compensation for breach of a residual non-statutory obligation to provide information (see paragraph 11 above).

  1. Overquotations to deferreds

We are here concerned with deferred pensioners who have received benefit statements but whose benefits have yet to come into payment. Conceptually, the analysis should be the same as that applying to overpaid pensioners who wish to assert an entitlement to continue receiving excess benefits.

In practice, it will be even more difficult for deferreds to establish a sufficient change of position. It is one thing to say that one’s mode of living has been affected by the previous receipt and expected future receipt of a stated level of income and quite another to assert similar reliance when the stated level of income does not come into payment for another ten years. Much may depend on (a) the length of the period of deferment after the receipt of the benefit statement and (b) how long before the end of that period the error is discovered (i.e. the period available for adjustment).

  1. Practical problems for trustees

Thus far the legal merits of various claims and defences have been considered. But that is only the starting point. The Trustees in our hypothetical case have to grapple with the practical difficulties involved in attempting to rectify overpayments made over a long period to many thousands of members. Some of these difficulties are now examined.

Recovery of past overpayments will in many cases be a non-starter on economic grounds. Recovery by action requires a separate claim against each overpaid pensioner. The financial circumstances of each pensioner will have to be examined individually to see if estoppel or change of position defences are available. Unless the aggregate overpayment to the individual pensioner is substantial, the cost of recovery (including the cost of enforcing any judgment obtained) may exceed the value of the claim. The pensioner may be on legal aid or in any event unable to pay costs if he loses. Those pensioners who were overpaid most may have died and their estates been distributed. On top of this there are the acute public relations problems of pursuing such claims at all.

That is why recoupment would be such an attractive remedy. However, as discussed above, it is no longer available in the case of occupational schemes. Even if it were available, there are still drawbacks. A dissatisfied pensioner could complain to the Pensions Ombudsman under Part X Pension Schemes Act 1993. The Ombudsman would investigate whether estoppel, change of position or any other defences were available. Even if the Trustees successfully resist the complaint their costs will not be recoverable.

Similar problems may arise even in relation to reducing future payments to the correct level, where the Trustees are on much stronger legal ground. It would be all too simple for the pensioner or deferred pensioner in question to make a complaint of maladministration to the Ombudsman. He has nothing to lose. He has three years after the reduction is made within which to make his complaint. The Trustees cannot safely complete the winding-up of the Scheme during that period.

In those circumstances, what can the Trustees do

(a) to ascertain whether individual members may have valid estoppel/ change of position defences without having to initiate recovery proceedings or provoke a complaint to the Ombudsman?

(b) to contain the volume of any Ombudsman complaints?

(c) to ensure that all issues are resolved as soon as possible so that the Scheme may finally be wound up?

The Trustees should make an application to the Court under Part 8 CPR joining representative beneficiaries and seeking directions under the Court’s Beddoe[[1893] 1 Ch 547] and Benjamin [1902] 1 Ch 723 jurisdictions. This will have the effect of

(i) preventing any complaint being made to the Ombudsman unless permitted under the Court Order: s.146(6)(a) Pension Schemes Act 1993

(ii) enabling the Court

(a) to direct the Trustees whether individual recovery actions should be commenced or abandoned

(b) to regulate within a suitable time frame the resolution of any claims by members.

In Mettoy Pension Trustees Ltd v Nicholls (10 February 1999), Jacob J was prepared to make an order, binding on the members, which:

(a)   directed the trustees, by date X, to write to each deferred pensioner in an approved form (pensioners in payment were by agreement dealt with differently)

(i) explaining that the Court had provisionally decided that deferreds were not entitled to excess benefits but that individuals should have the opportunity to advance special grounds for claiming such benefits

(ii)      advising them of the sort of circumstances which might give rise to an estoppel/change of position in a way which (importantly!) emphasised their exceptional nature

(iii) inviting any such claims (supported by documentary evidence) by date Y

(b)  gave the trustees liberty to accept any estoppel/change of position claims made within the deadline which appeared to them to be justified

(c)  gave the trustees liberty to distribute the fund on the footing that no other claims were valid unless complaints were made to the Ombudsman by date Z.

This highly pragmatic approach is just what is required in these administratively difficult cases.

  1. Claim for damages against Apocalypse

Let it be assumed that breach of contract and/or negligence could be established and that Apocalypse is good for the money. It would obviously be attractive to the Trustees to recover their losses from a single third party rather than having to pursue thousands of Scheme members.

Can the Trustees legitimately pursue Apocalypse without even attempting to reverse the overpayments? The answer depends on whether the Trustees are required to attempt recovery from members in order to show that they have taken reasonable steps to mitigate their loss.

So far as past overpayments are concerned, the Trustees would almost certainly not be required to pursue members because:

(a) claimants are not generally required to embark on complex or doubtful litigation against others (even if provided with a costs indemnity by the wrongdoer): Pilkington v Wood [1953] Ch 770

(b) there are dicta supporting the view that claimants are not required to take steps which might be considered disreputable or would harm innocent third parties: London & South of England Building Society v Stone [1983] 1 WLR 1242, 1263.

The position may be different insofar as the Trustees seek to recover from Apocalypse the capital cost of continuing the overpayments in the future. Reduction to the correct level would not require the Trustees to embark on any litigation although, of course, the likely result of their making such reductions would be the institution of numerous complaints to the Ombudsman.

  1. Conclusions

In the light of the above analysis, the following tentative conclusions can be expressed:

(1) recovery of past overpayments will generally not be a viable option for trustees;

(2) trustees will in most cases be entitled to reduce overpaid pensions to the correct level for the future;

(3) other than in exceptional cases, deferred pensioners will not be entitled to insist on payment of overquoted benefits;

(4) the defence of change of position should be developed so as to apply

(a)     irrespective of fault on the part of a bona fide payee

(b) in cases of anticipatory reliance

(c) in such a way that the interests of third parties may be weighed in the balance;

(5)    estoppel should no longer be recognised as a separate defence in cases of payment under a mistake;

(6) s.91 Pensions Act 1995 should be amended so as to permit recoupment with the approval of the Court.


Andrew Simmonds QC, 5 Stone Buildings


This paper was presented at the APL BREWERS’ HALL SEMINAR 31 JANUARY 2000 and it is reproduced here by kind permission of both the author and APL. A copy of the paper can also be found on the APL web site at http://www.apl.org.uk/

This paper was been prepared solely for the purpose of the seminar or conference to which it relates. The information and expressions of opinions which it contains are not intended to be a comprehensive study, nor to provide legal advice, and should not be treated as a substitute for specific advice concerning individual situations.

No responsibility can be accepted for errors or omissions however caused.

It is written on the basis of law and practice as at the date it was given.