Recovery of Overpayments


Overpayments (and underpayments) typically happen by mistake. But even if the member has received an overpayment in good faith, it does not mean they are entitled to it. Indeed, trustees may be under a duty to recover the money to avoid a loss to their scheme and detriment to other members.

Trustees should also expect that a member is likely to be upset and angry at receiving a letter telling them that their pension benefits have been overpaid, must be reduced to the correct amount going forward and asking for repayment. Therefore, it is important that any plan for recovery of any overpaid money is sensitive and appropriate.

In this Alert:

Key points

  • Despite seeming unjust to members who have been overpaid, trustees are under a duty to take steps to recover overpayments.
  • Care needs to be taken in how requests for repayment are handled, as an insensitive attempt at recovery could itself amount to maladministration.
  • But members may be able to resist any attempts at recovery if they have changed their position as a result of having received the overpayments.

Requiring repayment

The starting point is that the trustees ought to take all reasonable steps to request repayment as part of their general duties to account for trust money. An underpayment or overpayment can be viewed as a failure to pay benefits in accordance with the scheme rules and the adverse financial consequences of such failure must be mitigated. It also avoids the other members being disadvantaged by an overpayment to another member.

But the trustees are also entitled to take the view that the cost of pursing an overpayment is disproportionate to any likely recovery of the money. The amount of money involved and the likely costs to be incurred will influence the trustees' decision about what are reasonable steps to recover the money in any given case.

What can a member do?

A member might be able to resist repaying an overpayment if they can show they have changed their position in reliance on the money paid to them by mistake. The member would have to show that they had irrevocably changed their position – by taking, for example, a luxury holiday that they would not otherwise have taken nor been able to afford but for the overpayment. By contrast, saving the overpayment in the bank or purchasing an asset such as a new car is generally not sufficient to amount to a change of position as these assets can be realised to recoup the funds (either in whole or, at least, in part).

But good faith on the part of the member is important. Change of position may not be an effective defence if the scale of overpayment is so great that the member ought to have been aware of the error.1

Key issues for trustees

There are a number of key considerations for trustees relating to recovery of overpayments:

How much notice should trustees give the member before correcting a pension payment?

In our experience, 4-6 weeks is normally appropriate, to allow members to make adjustments to financial arrangements.

Can overpayments be recovered against future pension instalments?

The simple answer is yes – provided this is handled sensitively and fully explained to the member with adequate notice as above. Earlier concerns that such set off arrangements might breach section 91 of the Pensions Act 1995 (which prevents deductions from a member's pension) were allayed by 2005 amendments.

Over what period should the trustees require the overpayment to be recovered?

The Pensions Ombudsman often views a reasonable period of recovery as equivalent to the period of overpayment. For example, if a pension is overpaid for a year, it would normally not be viewed as reasonable by the Ombudsman to require repayment in a shorter period that a year.

Is anybody else is at fault?

It may be that a third party, such as the administrator, made the mistake in calculating the pension resulting in the overpayment. The trustees may be able to recover some or all of the loss to the scheme from the third party, if the money cannot be recovered from the member or without disproportionate cost. The costs and expenses of having to recover overpayments, including professional advisers' costs of checking the true position and/or dealing with a resulting member complaint, can be claimed from the administrators and trustees should give notice of their intention to do so at an early stage.


Since 6 April 2006, when the Finance Act 2004 came into force, an overpayment of a pension is treated as an unauthorised payment (and as such may have a tax penalty applied). Changes made in 2009 have tempered the position so that past overpayments may be considered to be authorised where the trustees believed that the member was entitled to the sums overpaid.

This is also the case where sums are paid after the member's death because the trustees were unaware of the death – provided that the overpayments do not continue beyond 6 months after the date of death.

1 See the 2010 Pensions Ombudsman decision in Kenny (28034/5)

For more information

Katherine Dandy

+ 44 (0)20 7615 9507

Peter Murphy

+ 44 (0)20 7615 9568

Arshad Khan

+ 44 (0)20 7615 9563

James Bingham

+ 44 (0)20 7615 9597


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