How to recover pension scheme overpayments

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Gateley Legal

Given the lifespan and complexity of pension schemes, it is not uncommon for scheme members and beneficiaries to be overpaid benefits and to receive more than their entitlement under the rules of the scheme or legislation.

In this guide we set out some key "dos" and "don'ts" which trustees should consider when dealing with overpayments and the issues that commonly arise. 


  • Decide whether you will attempt to recover the past overpayments. Your starting position as trustees is that you have an obligation to pay the benefits specified in the scheme rules and no more. This means recovering any past overpayments and correcting the position for future payments. However, there may be a justifiable reason for not recovering the overpayment and instead to simply correct the position going forwards. Any decision not to recover past overpayments will need to be well-documented and appropriate legal advice should be obtained.
  • Consider whether it would be appropriate to recover the overpayment by way of reducing the member’s future pension payments (recoupment) or to require the member to repay a lump sum from their savings or other income (repayment). There are issues with each option that need to be carefully considered including the point at which recovery of overpayments becomes time-barred
  • Carefully review any arguments put forward by the member and supporting evidence as to why they should not or cannot repay the monies due. There are a number of defences the member may raise but the most common involve a “change of position” defence (i.e. the member has changed his position because of the extra money he has received to an extent that it would not be fair for him to repay the amount due), financial hardship or that the member has relied on a statement (for example from the scheme administrator or in the scheme booklet) that he believed to be correct (albeit which subsequently turned out to be incorrect). Obtain information from a number of sources to verify what you are being told.
  • Assess whether any third party (typically the administrator) is at fault for the overpayment. If so, then you may be able to recover some or all of the loss and/or the associated professional costs from that third party. Limitation issues may be a factor and so you should consider this with your advisers at the earliest opportunity. 
  • Remember to consider the tax position in respect of any overpayments. Where the overpayment was a genuine error then it is likely the overpayment will be treated as an authorised payment (and therefore no tax penalty will apply) but advice should be sought. 
  • Minute the basis on which you reached your decision in sufficient detail such that it is clear you considered all relevant factors 


  • Take steps to recover the overpayment or make deductions from the member’s pension without first entering into a dialogue with the member. Ideally, any decision should be taken with the agreement of the member.  
  • Communicate in an overly aggressive or assertive manner. The member is likely to be upset and shocked at being informed that their pension benefits have been overpaid. Any correspondence should therefore be written in a sensitive and appropriate manner. 
  • Look to recover the overpayment by means of recoupment over a period that is shorter than the period over which the overpayment was made. The Pensions Ombudsman’s view is that where recoupment is being used, it would be reasonable for trustees to seek recovery over the same length of time that the incorrect benefits were paid. For example, if the member had his pension overpaid for a period of 5 years, you should seek to recover that amount from the member’s pension payments over the next 5 years.
  • Make knee-jerk decisions. You should prepare a strategy for dealing with the matter, understand any issues it gives rise to, gather appropriate information, make justifiable and well-documented decisions and deal with the member fairly and reasonably (remembering that the matter may end up in front of the Pensions Ombudsman or the courts).

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