Aecom Group Pension Scheme · CAS-39869-Q8J7

CAS-39869-Q8J7

Ombudsman’s Determination Applicant Mr Y

Scheme AECOM Group Pension Scheme (the Scheme)

Respondent AECOM Pension Trustee Limited (the Trustee)

Complaint Summary

Summary of the Ombudsman’s Determination and reasons The complaint should be partly upheld against the Trustee because it should not have commenced the recovery of the overpayment without an order of a competent court.

Detailed Determination Material facts

The sequence of events is not in dispute, so I have only set out the salient points. I acknowledge there were many other exchanges of information between all the parties.

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“[Mr Y] has written to the Trustees to enquire whether he could be allowed to take pension benefits at age 60 without suffering the early retirement penalty. This request has been denied, and [Mr T] has formally responded to [Mr Y].”

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The Pensions Ombudsman’s position on the reduction of future payments when overpayments are discovered and on the recovery of past overpayments

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Conclusions

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I find that, as a matter of law, the Trustee acted correctly in seeking to recover the overpayment in this case. The Trustee is required to pay the correct benefits under the Rules. The starting point must be that it is equitable for the Trustee to seek recovery of the overpayment subject to any applicable defences in law. The Trustee is not in the current case seeking to recover the money by seeking repayment on grounds of unjust enrichment. Instead, it is seeking to recover the overpayment by exercising the “self-help” remedy of equitable recoupment by withholding future pension increases to Mr Y’s pension until the overpayment is recovered in full.

So, I do not need to look at the position in relation to any repayment claim. However, I would note in passing that if a repayment claim is made in future against Mr Y or his estate, Mr Y, or his personal representative on behalf of his estate, may potentially have a limitation defence in relation to the recovery of part of the overpayment. This would need to be considered at the time of the claim.

General Equitable Defence to Equitable Recoupment claim

Equitable recoupment is an equitable remedy and as noted in Re Musgrave at [425] can only be exercised where it is equitable to do so.

I consider, for essentially the same reasons to the reasons discussed in relation to change of position and estoppel defences below, that it would be equitable for the Trustee to seek recovery of the overpayment over a reasonable period.

Change of position

1 MGN v Horton [2009] EWCHC 1690 at 33 – see also Prudential Assurance Co Limited v HMRC [2016] EWCA Civ 376 at [150] per Lewison LJ 12 CAS-39869-Q8J7

A key issue in this case is whether Mr Y was acting in good faith. In particular, whether he had actual knowledge he was being overpaid or “Nelsonian Knowledge.” (In other words, he was aware that he may not be entitled to the money but did not check the position). Mere carelessness, or negligence by the recipient of the overpayment is not sufficient to demonstrate bad faith. To reach a view on whether Mr Y had actual or Nelsonian knowledge, it is necessary to consider the detailed evidence on what Mr Y did or did not know about how his pension would be calculated on retirement. The burden of proof for demonstrating all the elements of a defence, including good faith, is on Mr Y.

In April 1998, Mr Y applied to transfer his benefits from the COMP Scheme to the KP Scheme. He liaised with other members who had the option to make a similar transfer and also dealt with the paperwork in his role as a pensions administrator. I am satisfied on reviewing the evidence that Mr Y would have read the paperwork relating to the transfer and would have been aware at the time that, if he applied to transfer, he would be granted benefits on the basis that his NRA would be 65.

Mr Y said that he did not make the Enhancement Request. However, a copy of a letter dated 12 October 2004 has been provided which purports to be from Mr Y. This letter was not signed. It had been sent by email to the Trustees of the KP Scheme, so I do not consider the lack of a signature as being unusual. On the balance of probabilities, I find that the letter had been sent by Mr Y. I am also satisfied that he had knowledge at the time he made the Enhancement Request that part of his benefits had an NRA of 65.

In March 2005, the Trustees of the KP Scheme considered the Enhancement Request at a Trustees meeting. The Enhancement Request shows that Mr Y understood that, in the normal course, he would not be able to draw his benefits at 60 without a reduction, as he asked the Trustees whether they “…would consider allowing me to draw all my pension benefits at 60 without incurring a penalty”. The minutes of the meeting record that the request had been declined and that Mr Y had been informed of the decision in writing. Mr Y said that he did not receive confirmation of the decision. As I have conflicting evidence on whether Mr Y was aware of the position at the time, I have to form a view on the balance of probabilities whether he did in fact receive and read the letter.

Given that there is evidence that the letter was issued, I consider that on the balance of probabilities, Mr Y did receive and read the letter. I also consider it unlikely, having made the Enhancement Request, that Mr Y would not have followed this up with the Trustees of the KP Scheme in 2005 if he had not received a reply.

Prior to receiving KPMG’s letter of 4 March 2011, Mr Y telephoned KPMG. He says that during the conversation, he asked KPMG to review his retirement figures and

13 CAS-39869-Q8J7 provide a breakdown of the calculation. He maintains that he also asked KPMG to get confirmation that his benefits had been enhanced at some time in the past before sending him the breakdown.

KPMG’s response on 4 March 2011, included a breakdown of the calculation that Mr Y had requested. It would have been apparent to Mr Y at the time that his entire pension had been calculated based on an NRA of 60. Mr Y asserts that this indicated that his benefits had been enhanced. So, he had no further reason to query the figures.

I do not agree that this is the case. KPMG made no reference to any enhancement to his benefits in its response. I consider that it was unreasonable for Mr Y to have assumed that his benefits had been enhanced, solely on the basis of the pension figures he had received from KPMG. In the circumstances, he should have continued to query the position with KPMG and made further enquiries.

I appreciate that Mr Y expected KPMG to have undertaken the necessary checks to ensure the figures were correct. However, I do not consider that detailed pensions expertise was required to understand that part of his pension had an NRA of 65 and that the breakdown of the calculation that was provided by KPMG did not reflect this. Furthermore, Mr Y was in the role of pensions administrator in April 1998. He was liaising with other members in relation to their transfers and dealing with the transfer paperwork. So, he would have been more familiar with the terms of the transfer than a layperson. In his response to my Preliminary Decision, Mr Y acknowledged that he was aware that part of his pension had an NRA of 65.

Mr Y has, subsequently, referred to at least three telephone calls that he had with KPMG in which he says he made further enquiries, but his calls were not returned as he had been promised. He says that he had told KPMG that part of his pension had an NRA of 65, but he had been told he was wrong. He also refers to other enquiries he made which would have alerted KPMG to the fact that not all of his pension had an NRA of 60. He did not agree that he had failed to make reasonable enquiries.

Unfortunately, there is no record of these telephone calls or of what was said by each party during the conversations. For this reason, I am unable to place much weight on them when considering whether Mr Y made reasonable enquiries.

In summary, I find that Mr Y had sufficient knowledge to appreciate that there may have been an issue with the retirement figures. He had the opportunity to question the figures at the time but failed to make reasonable enquiries. The good faith test has not been met as I find that Mr Y had Nelsonian knowledge of the possibility that his retirement benefits had been overstated.

Accordingly, he does not have a change of position defence to the recovery of the overpayment.

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“If one had to identify a single factor which a claimant in an estoppel case has to establish in order to obtain some relief from the court it would be unconsionability – see Robert LJ in Gillett v Holt [2000] Ch 198 especially at 225 and 232” [emphasis added in bold].

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2 See Phipson on evidence (20th Edition) at 5.29. 3 National Westminster Bank Plc v Somer International (UK) Ltd [2002] 1 All ER 198. See also discussion of case law in Goff & Jones (the Law of Unjust Enrichment – 9th Edition) at 30-02 4 See discussion of the relevant case law in Goff & Jones (the Law of Unjust Enrichment – 9th Edition) paragraphs 30-02 and 30-03. In particular RE Jones v Waring 5 Briggs J in Revenue and Customs Commissioners v Benchdollar [2009] EWHC 1310 at [52] as subsequently modified by him in Stena Line Ltd v Merchant Navy Ratings Pension Fund Trustees Ltd [2010] EWHC 1805(Ch) PLR at [137] and by Hildyard J in Blindley Health Investments Ltd v Bass [2015] EWCA Civ 1023, [2017] – Ch 389 at [92]. These principles were approved by the Supreme Court in Tinkler v HMRC [2021] UKSC 39, [2021] 3 WLR 697 at [53]. 16 CAS-39869-Q8J7

Laches

It was confirmed in the Burgess v BIC case that, as equitable recoupment is a self- help remedy, involving adjustment of accounts, limitation does not apply (see Re Robinson [1911] Ch 502). In that case, Mr Justice Arnold also relied on section 36(1)(b) of the Limitation Act which excludes the contractual limitation period in respect of claims for specific performance of a contract or an injunction or for any equitable relief.

However, in Burgess v BIC Mr Justice Arnold did consider that laches might provide a defence to recovery of overpayments.

Caselaw indicates that laches generally requires:

17 CAS-39869-Q8J7 In deciding whether laches could be used as a defence, a court or the PO needs to consider the length of the delay and the nature of the acts done during the interval (such as change of position or loss of evidence by the trustee) which might affect either party and cause a balance of injustice in allowing or not allowing the remedy.6 More recent cases have established that the court or the PO should not enquire whether the circumstances match previous decisions but ask whether the claimant’s actions make it inequitable to grant the relief that is sought7.

The Court of Appeal8 also endorsed the more modern approach, that laches does not:

“require an inquiry as to whether the circumstances can be fitted within the confines of a pre-conceived formula derived from old cases…[but instead requires] a broad approach directed to ascertaining whether it would in all the circumstances be unconscionable for the party to be permitted to assert his beneficial right. No doubt the circumstances which give rise to a particular result in decided cases are relevant to the question whether or not it would be conscionable or unconscionable for the relief to be asserted, but each case has to be decided on its facts applying the broad approach.”

Also, in later cases9 it was said:

“The question for the court in each case is simply whether, having regard to the delay, its extent, the reasons for it and its consequences, it would be inequitable to grant the claimant the relief he seeks.”

Having regard to the above caselaw, and for essentially the same reasons as those I considered in relation to the change of position defence and estoppel defence, I do not consider it would be equitable to allow a defence of laches in the circumstances.

6 Lindsay Petroleum Oil & Co v Hurd (1974) LR PC 221 at [66] as approved in Erlanger v New Sombrero Phosphate Co (1878) 3 App Cases and applied in Re Sharpe [1982] 1 Ch 154 Ch 7 See Frawley v Neill [2000] CP Reports 20 The Times April 5 1999 and Schulman v Hewson [2002] EWHC 855 (Ch) at [44]). See also J J Harrison (Properties) Ltd v Harrison [2001] 1 BCLC 158 which also adopted the more modern formulation in a systematic way looking at the various factors which may or may not make it equitable to allow a laches defence. 8 Patel v Shah [2005] EWCA Civ 157 9 PO Nedlloyd BV v Arab Metals Co [2006] EWCA Civ 1717 applied in Sheffield v Sheffield [2013] EWHC 3927 (Ch) at [100], [106], [119] 18 CAS-39869-Q8J7

19 CAS-39869-Q8J7 “(1) Where a person is entitled to a pension under an occupational pension scheme or has a right to a future pension under such a 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.”

“(5) In the case of a person (“a person in question”) who is entitled to a pension under an occupational pension scheme, or has a right to a future pension under such a scheme, subsection (1) does not apply to any of the following, or an agreement to effect any of the following:

[…]

(f) subject to subsection (6), a charge or lien on, or set-off against, the person in question’s entitlement, or right, for the purposes of discharging some monetary obligation due from the person in question to the scheme arising out of a payment made in error in respect of the pension.”

“(6) Where a charge, lien, or set-off is exercisable by virtue of subjection 5(d) (e) or (f) –

(a) its amount must not exceed the amount of the monetary obligation in question, or (if less) the value (determined in the prescribed manner) of the person in question’s entitlement or accrued right; and

(b) the person in question must be given a certificate showing the amount of the charge, lien or set-off and its effect on his benefits under the scheme,

and where there is a dispute as to its amount, the charge, lien or set-off must not be exercised unless the obligation in question has become enforceable under an order of a competent court or in consequence of an award of an arbitrator or, in Scotland, an arbiter to be appointed (failing agreement between the parties) by the sheriff.”

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I recognise that in the past, the issue of whether equitable recoupment was a form of set-off for the purposes of Section 91 has been a subject of debate amongst pension lawyers and academic commentators. There were legitimate arguments on both sides of the debate. It was accepted by the parties in Burgess v BIC at [164] that an equitable right of recoupment was subject to Section 91. The court did not, having heard full legal argument on the subject, have to decide the issue of whether the mechanism of equitable recoupment amounts to a form of set-off. In CMG it was noted again at [146] that it was common ground that Section 91 applied to recoupment. So, strictly speaking, it might be argued that Leech J did not decide this specific legal issue. However, Leech J could not have decided the question of whether the claimant must obtain an order from a competent court before effecting recoupment where there is a dispute, (see [paragraphs 145-149]) without also deciding implicitly that Section 91 does apply to recoupment. In the CMG (CA) case much of the analysis was premised on the assumption that equitable recoupment is a form of set-off for the purposes of section 91(5) of PA 95. The legal position is therefore, in my view, reasonably well settled on this specific issue. My predecessor and a past Deputy Pensions Ombudsman have also taken this view in various Determinations from Clift PO-2066 3 June 2014 at [38] that Section 91 does apply in recoupment cases, and this also represents my view. I do not accept it is correct that there is no dispute about the amount of set-off for the purposes of s91(6) and that there is merely a dispute about Mr Y’s entitlement to a particular level of benefit. The amount of any set-off would be linked to the level of the overpayment, which would be determined by reference to the individual’s correct entitlement under the pension scheme in question. Where there is a dispute concerning whether all or any part of the alleged overpayment is recoverable, this would still be considered a dispute as to the amount of the overpayment.

It follows that there has been a breach of law in this case. The Trustee sought to recover the overpayments up to 1 November 2018 (by withholding pension increases on Mr Y’s correct level of pension) while there is an ongoing dispute about the amount of the overpayment (if any) which is recoverable under section 117 of the PA 95. To the extent that any provision included in Part 1, which would include Section 91, conflicts with the provisions of an occupational pension scheme, the provisions of the scheme are overridden by Section 91. So, the Trustee should not have sought to recover the disputed overpayment using the mechanism of equitable recoupment without an order of a competent court.

It follows that the Trustee was in breach of Section 91 and in breach of trust (outside their powers) by seeking to recover the disputed overpayment without an order of a competent court (which, at present, cannot be provided by this Determination). So, the Trustee shall repay the money deducted up to the date of my Determination.

22 CAS-39869-Q8J7 However, importantly, this does not preclude the Trustee from recovering the money (already recovered and which should now be repaid) from future payments of pension due to Mr Y under the doctrine of equitable recoupment as long as the approach adopted is not “inequitable” and is otherwise in accordance with the law (notably Section 91). The total amount of past overpayments will remain the same.

I acknowledge that the Trustee received unqualified advice from its legal advisers in connection with this matter. So, I do accept that there has been no maladministration by the Trustee in this respect. Various cases confirm that, while there is significant overlap between the concepts of maladministration and breach of law, the expressions are neither synonymous nor co-terminous. There can be a breach of law without there being maladministration (see for example Glossop v Copnall [2001] 53 PBLR). Proceeding on advice on the basis of a view of the law which is subsequently established to be wrong will not necessarily amount to maladministration.

As previously discussed, caselaw on equitable recoupment has established that equitable recoupment can only be used to recover overpayments to the extent it is not inequitable to do so (See Re Musgrave at [425]). In the CMG case at Court of Appeal Lady Asplin stated at paragraph [50] of her judgment that the Ombudsman is required to consider when determining whether an overpayment is recoverable “whether there are any defences to the equitable right of recoupment and what would be appropriate in relation to the rate of recoupment in all the circumstances.”

Following the issue of my Preliminary Decision in this case I invited comments from both parties about what would be an appropriate equitable rate of recoupment. I received representations from the Trustee about possible rates of recoupment but not from Mr Y who still maintains that none of the overpayment should be recoverable.

The Trustee also requested that, if Mr Y does not agree the approved recoupment, the £3,531.36 offered by KPMG should not be used to offset against his overpayments as it had earlier proposed. This would be on the basis of the time and cost the Trustee will be put to if it is “forced to obtain such an order” which the Trustee considers will significantly exceed this figure.

In relation to this comment on the costs of taking enforcement action, it was noted by Lady Asplin in paragraph [29] of her judgment that the detailed procedure and the way in which an application for enforcement of a PO Determination and directions are 23 CAS-39869-Q8J7 set out in CPR Rule 70 and the Practice Direction. Where CPR Rule 70 applies, a copy of a decision to be enforced must be filed with the application and the matter will be dealt with by a court officer without a hearing (See CPR Rule 70.5(7)). Lady Asplin also confirmed again at paragraph [58] of her judgment in CMG (CA) that the enforcement in the County Court is an administrative matter and there is no requirement to commence an action in the County Court or for that Court to consider the merits of the matter. Moreover, Lady Asplin indicated at paragraphs [45] and [55] of her judgment that she envisaged that the County Court would enforce the Determination and directions by making an order specifying the amount of the overpayment and specifying the amounts to be recouped over a specified period at a specified rate.

I have concluded, having considered all the representations, that it would be appropriate, having restored Mr Y’s pension to where it should have been if the Trustee had not ceased increasing his pension in breach of Section 91, that the total overpayment of £15,924.73 should then be recouped by reducing the pension by the amount of £306.25 a month until the overpayment is fully recouped. To the extent that any money is recovered by the Trustee from KPMG (who are not party to this dispute) Mr Y’s share of the KPMG payment should also be applied towards reducing the overpayment.

Summary

Determination and Directions

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Dominic Harris

Pensions Ombudsman 19 December 2023

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Extracts from the briefing notes issued in February 1998

Knight Piesold Ltd Final Salary Pension Scheme (The WLPU (UK) Pension & Assurance Scheme) briefing note - Equitable Life Scheme Members:

“This Briefing Note explains the effect that the changes occurring to the WLPU Scheme from 1st April 1998 will have on benefits earned by a member contributing to the Equitable Life Scheme until then. It should be read in conjunction with the Briefing Note explaining the scheme’s new benefit structure.”

“Ex WLPU Members

If you had previously been a member of the WLPU scheme and had transferred your rights into the Equitable Life Scheme you will, totally at your own choice, have a one off opportunity to be reinstated for past service back to the date that you originally joined the WLPU Scheme on the basis of the 6% Contribution Category under the new arrangements.”

Knight Piesold Ltd Final Salary Pension Scheme (The WLPU (UK) Pension & Assurance Scheme) briefing note – New Benefit Structure:

“ Employee Pension Accrual Rate Normal Contribution Retirement Age

4.5% 1/80th 65

6.0% 1/60th 65

8.0% 1/60th 60

”

26 CAS-39869-Q8J7 Appendix 2 Summary of the breakdown of the calculation of Mr Y’s retirement pension provided by KPMG on 4 March 2011

“Final Pensionable Salary £24,488.67 Pensionable Service 19 years and 91 days Accrual Rate 1/60

Pension accrued at date of leaving (31 July 2003):

£24,488.67 x 19 91/365 x 1/60 = £7,856.78 per annum

The accrued pension contains an element of Guaranteed Minimum Pension (GMP) amounting to £1,930.24 per annum.

The accrued pension is then revalued to the date of retirement using a fixed rate of 4.5% each year for the GMP element (£1,930.24 per annum) and the remainder of the accrued pension (£5,926.54 per annum) is revalued in line with Section 52a orders, which are issued each year by the Government.

The pension at your Normal Retirement Date ([…] July 2011):

£5,926.54 x 1.217 = £7,212.57 £1,930.24 x 1.422 = £2,744.80

Total at […] July 2011 = £9.957.36 per annum (rounded)”

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Appendix 3 Extract from the Pensions Ombudsman’s Determination and directions relating to recoupment of the overpayment by the AECOM Group Pension Trustee as trustee of the AECOM Group Pension Scheme from Mr Y

(1) Subject to first obtaining an order of a competent court for the purposes of Pensions Act 1995, and as provided for below, the AECOM Group Pension Trustee may recoup the overpayments of £15,924.73 made in error to Mr Y from the Scheme by reducing Mr Y’s monthly pension payments from the AECOM Group Pension Scheme by £306.25 per calendar month.

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