The line usually taken by the Ombudsman is that overpayment indicates maladministration and recovery of past overpayments might cause injustice. The relevant court authorities are [1983] 1 All ER 1073, [1991] 2 AC 548 and [2000] PLR 1. The general principle flowing from those cases is that recovery of past overpayments should only be allowed where it would be equitable to do so. An early example of the principle being applied by the Ombudsman in favour of a scheme beneficiary is case F00203 which was summarised (at p147) in the Digest of Cases 1996/97 as follows:
"The complainant had a widow's pension, which was overpaid from 1991 to 1994 by GBP 2,529.69. The manager mistakenly paid her the full amount of GMP due to her late husband, rather than the half to which she was entitled. The error was picked up on an audit, and the manager proposed to recover it over ten years, but she rejected this proposal and requested that no recovery be made. She also had a pension of the same amount from another scheme, and the State pension. OPAS negotiated repayment over 20 years at GBP 6 a month.
Result:
The overpayment was paid under a mistake of fact and, strictly, recoverable ( [1835- 42] All ER 320 at 322). However, in [1983] 1 All ER 1073, the defendant successfully argued that, as he had spent some of the overpaid money in reliance on the representations as to the amount of the payments in question, those representations acted as a bar to recovery.
The complainant had no way of knowing her pension was being overpaid. Even when added to her other pensions, it would only provide a modest income for her and her dependent daughter. Such a limited income did not easily allow for sudden reductions. Whilst mere expenditure of money might not be regarded as a sufficient change of position for present purposes, it must still be shown to be inequitable for money paid under a mistake of fact not to be recoverable (see [1991] 2 AC 548). The repayment of money spent in reliance on and in consequence of the maladministration would not appear equitable and must necessarily involve hardship amounting to injustice.
The manager relied on a committee minute as its authority to pursue recovery, but in making the resolution recorded in the minute, the management committee was purporting to fetter a discretion applicable in a particular case. It ought not to have been so fettered and the manager could not rely on it. It owed a duty of care to the complainant to ensure her pension was correctly calculated. It should have been clear to it that she was not entitled to the same level of pension as her late husband. It should cease making deductions from her pension in respect of the overpayment and refund those already made, with interest."
Contrast this approach with the line taken by the High Court in . The Court ordered that it was permissible for pension and lump sums totalling £170,000 to be returned by a pensioner. The judge said that "in my view, there must be some causal link between the receipt of the payment and the change of position such that it would be inequitable to require the recipient to return the money to its owner".
The suggestion by the manager to recover the overpayment over ten years equates to a long established equitable remedy where an overpayment is made from a trust. Some doubts were raised in the past as to whether this remedy is ever available following the introduction of PA 1995, s91 which prohibits the exercise of any right of set-off in relation to pension rights except in limited circumstances such as where a member owes an employer money. The problem was dealt with by David Laverick in case ref L00663. In that case, Mr Noble was over-paid his pension so a decision was made to stop the pension payments in order to recover the over- payment. The Ombudsman found that this was not a problem under s.91. The Ombudsman held that the member's entitlement was to a pension over his lifetime, not to a monthly instalment for the pension and it made sense that if a person is wrongly overpaid his entitlement, it could be adjusted by the non-payment of some future pension instalments.
