How should I respond to a request for repayment of overpaid pension?

Last updated: 07 Dec 2020

For both statutory and trust based defined benefit pension schemes there is a requirement for pension benefits to paid in line with the rules of the scheme. This means that if you’ve been overpaid the administrators are required to amend your ongoing payments to the correct level and seek to recover overpayments in most cases.

Common reasons for overpayments and underpayments occurring are revisions received by administrators to pensionable pay or reckonable service after the calculation of pension benefits or incorrect increases to pensions in retirement relating to guaranteed minimum pension (GMP) records.

In some circumstances arguments can made that it is not appropriate for the administrator to recover the overpayment.

Members of public sector pension schemes can have overpayments waived under HM Treasury guidelines for managing public money in the event that the expected administration cost of recovering the overpayments is greater than the overpayments themselves. This guidance resulted in the Cabinet Office writing off overpayments for Civil Service pensioners arising from GMP rectification. You can find the HM Treasury guidelines here:

We recommend members with a request for repayment of overpaid pension benefits consider taking the following steps:

(1) Verify that the correspondence really is from your pension scheme administrator

Unfortunately there are many criminals targeting pension scheme members. Fraudsters can make their communications seem genuine. Refer to guidance from the Pension Regulator on spotting pension predators:

(2) Get a full explanation of how the overpayment arose

It is important to understand how the error arose and establish who was at fault initially. It is also important to know that the error has been fixed properly. Ask the scheme for a full explanation of how the error arose and confirmation that the latest figures are correct.

(3) How old are the overpayments?

The statute of limitations normally applies when administrators are seeking immediate recovery of the full amount of overpaid pension benefits. The statute of limitations is six years in England, Wales and Northern Ireland. In Scotland the time limit is five years. It is therefore important to query the time period of the overpayment as well as requesting a breakdown of the overpayments for each tax year. You can then be a in a position to propose repaying the overpaid monies up to the statute of limitations limit.

The statute of limitations doesn’t apply when administrators seek to recover overpayments via a deduction from your future pension payments. There is a precedent that administrators should allow scheme members to a repayment plan that reflects the length of time the overpayment occurred.

(4) Can you challenge a decision to pursue repayment?

In these situations it should be possible for you to argue that (a) the problem was the scheme’s fault and (b) there is no possible way you could have been aware of the issue.

If your financial position has changed in a way that you cannot undo, (for example by spending the money on a holiday or on a generally improved standard of living over a period of time), it might be possible to argue that the scheme should write off some or all of the overpayment.

Please contact Prospect if you would like help when making these points to your scheme.