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Recovery of overpayment by equitable set-off Determination – The case study of Mr E

Complaint Topic: Overpayments
Outcome: Partly upheld
Type: Pension complaint or dispute

The case involved complaints made by Mr E against Teachers’ Pensions (TP) and Islington Borough Council (the Council), resulting from TP’s claim that his pension from the Teachers’ Pensions Scheme (the Scheme) had been overpaid, and its request for the return of the overpaid amounts.

The Ombudsman partly upheld the complaints against TP and the Council, finding that Mr E did not have any defences available to the recovery of the overpaid funds, but both respondents had caused him distress and inconvenience.

In his conclusions, the Ombudsman considered that TP was relying on equitable set-off as the legal basis for recovering the overpayments.

Equitable set-off operates in a similar way to equitable recoupment. However, equitable recoupment is a principle that applies to trustees, and the Scheme was a statutory unfunded scheme with no trustees and no trust, so recoupment was not available to TP. Mr E’s pension entitlement and the overpayment were cross claims between Mr E and TP, so the Ombudsman concluded that TP could rely on equitable set-off as the basis for recovery of the overpayment.

The Ombudsman considered whether any defences to recovery were available to Mr E, determining: 

  • As an equitable self-help remedy, equitable set-off is not subject to a six-year limitation period under section 5 of the Limitation Act 1980. In any event, all of the overpayments to Mr E were made within six years of his complaint, so he could not rely upon the limitation period under section 5 as a defence.
  • The necessary elements were not present for a valid defence of “change of position”, estoppel or contract.
  • TP should consider Mr E’s evidence for financial hardship.

The Ombudsman directed that:

  • TP should recover the overpayment through a mutually acceptable payment plan.
  • TP should pay Mr E £1,000 for the serious distress and inconvenience caused.
  • The Council should pay Mr E £500 for the significant distress and inconvenience caused.

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