Spent, Saved, or Repaid? Recent Pensions Ombudsman Decisions on Pensions Overpayments

Pension overpayments are not an uncommon occurrence and are likely to be a familiar issue for pension scheme trustees. An overpayment occurs when a member or a beneficiary receives more money from a pension scheme than they are entitled to. Overpayments can arise for a variety of reasons, including incorrect benefit calculations, failures to reflect changes in a member’s circumstances or administrative mistakes.

Since our July 2024 article Overpayments road to recovery – takeaways from recent Pensions Ombudsman determinations, the Pensions Ombudsman has issued some further decisions which we think provide some useful guidance for trustees. This article considers three recent Pensions Ombudsman determinations - following Mr E, Mr L and Mr N – who have each had varying levels of success in seeking to rely on the change of position defence where there had been an overpayment.

The legal starting point 

Trustees are under a legal duty to pay the correct benefits in accordance with their scheme's trust deed and rules, which has two practical consequences for overpayments. First, trustees must rectify the position for future payments by reducing benefits to the correct amount. Secondly, trustees will generally need to take steps to recover the overpaid amounts, even where the overpayment was not the fault of the recipient. 

Overpayments can be recovered in a number of ways. If trustees pursue litigation, repayment can be obtained through a lump sum or a series of instalments. Further options include recoupment and equitable set-off, which enable trustees to recover the amount through deductions to future pension payments (which is often a simpler and more practical way forward). 

Change of position defence

Although trustees will generally be entitled to recover the overpaid amounts there are potential defences available to recipients, including what is known as the “change of position defence”. The change of position defence is available in circumstances where a recipient has so changed their position, that it would be inequitable to require them to repay the money paid to them in error. There are two elements of the defence that must be satisfied: 

(1) the recipient must be acting in good faith; and

(2) there must be a causal link between the overpayment and irreversible expenditure.

 The determinations

In each of the determinations considering Mr E, Mr L and Mr N, the change of position defence was considered. 

Mr E was in receipt of a widower’s pension and enquired whether the payments would continue if he remarried. The scheme incorrectly confirmed that they would. Mr E later remarried and continued to receive his widower’s pension in error. When the mistake was identified the scheme sought to recover the overpayments. The Pensions Ombudsman found that Mr E had successfully established the change of position defence and waived the repayments. 

In the determinations concerning Mr L and Mr N, the change of position defence was not upheld and the overpayments were recovered in full. Mr L's case involved an administrative error which caused his pension payments to more than double two years after he retired. Mr L had contacted the scheme's administrator several times over the telephone when he became aware of the increase, and Mr L stated the administrator assured him the payments were correct. In the case of Mr N, there was an error in the calculation of his pension which did not take into account his early retirement, causing him to receive overpayments for eight years.

Mr E was found to have acted in good faith as he did not have any reason to suspect he was overpaid and he had contacted the scheme which confirmed his entitlement in writing. Although Mr E had received newsletters mentioning the need to notify the scheme of remarriage, the Ombudsman stated that the specific question asked by Mr E "trumps" the general information contained in newsletters. Mr N had also acted in good faith as it was not possible for him to have known about the error in calculating his pension. In contrast, Mr L was unsuccessful in establishing that he had acted in good faith as he was unable to provide sufficient evidence. Although Mr L had telephoned the scheme administrator multiple times, there was no evidence as to the contents of these calls and in the circumstances it would have been reasonable to have obtained written confirmation. 

Turning to consider the causal link between the overpayment and irreversible expenditure, Mr E was found to have spent the money irreversibly because the Ombudsman found that, during the period when Mr E was overpaid, he lived within his income and had only modest savings. On that basis, the Ombudsman concluded that he must have been spending more than he would have done if the overpayments had not been made.

By contrast, neither Mr L nor Mr N provided sufficient evidence of this causal link. Mr L had enough assets to repay the overpayments and there was no evidence that his spending increased as a result of receiving the overpayments. Similarly, Mr N was unable to show any link between his spending and the overpayments, particularly as his expenditure had often exceeded his pension income to maintain his lifestyle in the evidence that was provided. In both instances Mr L and Mr N said they would have reduced their spending if they had known about the overpayments - however the Ombudsman confirmed that hindsight alone is not a sufficient indicator of detriment.

Key takeaways for trustees

From a trustee perspective, these determinations highlight several important points to bear in mind when assessing and seeking to recover pension overpayments: 

• These determinations reinforce that the success of the change of position defence will turn on the strength of evidence provided by the complainant, as the burden is on the recipient to establish a defence. The Ombudsman can request information as it sees fit and trustees should conduct a proper assessment of evidence at an early stage.
• In deciding whether an overpayment can be recovered, the focus is on the injustice this may cause the recipient rather than the degree of fault which occurred in making the overpayment.
• Trustees should actively consider whether any defences, including change of position, may apply during the scheme’s internal dispute resolution procedure (IDRP). Early consideration can help avoid escalation and reduce costs. Interestingly, if appropriate defences have not been considered at the IDRP stage they may still be considered by the Ombudsman in order to address any knowledge imbalance.
• Where a member has asked a specific question about their entitlement, the Ombudsman is likely to place greater weight on the specific response given rather than general information contained in newsletters or other scheme communications. Trustees should therefore take particular care to ensure that individual responses are accurate, as well as considering the level of detail that they wish to contain in member communications.
• Finally, these determinations act as a reminder that overpayment cases are decided on a case-by-case basis, and each element of the change of position defence is highly fact specific. Therefore, when looking at previous determinations for aid, what is perhaps more valuable to trustees is identifying the differences in circumstances rather than the similarities.

These themes are reinforced by the Pensions Ombudsman’s guidance on pension overpayments published in December 2025, which emphasises the importance of evidence and the early consideration of potential defences. Although targeted at members, trustees may find the guidance a helpful reference point for understanding the approach to handling overpayments and the Pension Ombudsman’s expectations.

Written by Lauren Young and Maegan Watts.