Court issues new ruling on forfeiture, recoupment and the Pensions Ombudsman's reach

15 minute read
04 October 2022

The circumstances in which trustees of occupational pension schemes can or should treat historic underpayments as forfeit have become a focus of attention following the decisions of the High Court in Lloyds and Axminster.

Being able to treat unpaid benefits and pension instalments as forfeit can be a useful tool in scheme administration and help employers and trustees to mitigate some of the financial consequences of historic errors in making rule amendments.

In the latest chapter in this area, involving the CMG UK Pension Scheme ("the Scheme"), the High Court ruled that the provision with which the proceedings were concerned is a forfeiture rule. In so doing, it has thrown further light on how to interpret the effect of possible "forfeiture rules" in other schemes.

Various arguments that had been made in all three pension forfeiture cases to come to court appear to have been resolved short of a decision by the Court of Appeal in a future case. However, the most recent judgment in this area reinforces the conclusion that each case must be considered by reference to the specific wording of the rule of the scheme in question.

As well as forfeiture, the Court considered various issues concerning the recoupment of overpaid benefits. What the Court decided on those issues is likely to have practical consequences for other schemes, particularly its ruling that the Pensions Ombudsman is not a competent court for the purposes of section 91(6) of the Pensions Act 1995.

What was the case about?

Historic attempts to equalise male and female Normal Retirement Ages and to change the accrual rate under the Scheme from 1/60ths to 1/80ths had not been wholly effective, as a result of which, on the face of it, members were owed arrears. Unfortunately, ineffective attempts to change the rules is not an uncommon feature of defined benefit pension schemes.

Issues arose as to whether certain underpayments of pension instalments and other benefits were liable to be forfeit under the Scheme's rules. If the rules do require forfeiture, some members who had already received payments of arrears had been overpaid, which gave rise to various issues that were relevant to how the trustee might recoup those overpayments from future instalments of pension.

To resolve these issues, the trustee applied to Court (in a representative role) for directions. Gowling WLG (UK) LLP, instructing Keith Rowley KC and Henry Day, acted for the Scheme's employer (also acting in a representative role).

The wording of the rule in question

Rule 5.11 of the 2000 Deed provided as follows:

"…if a benefit or instalment of benefits is not claimed…within six years of its date of payment it shall be retained by the Trustees for the purposes of the Scheme."

Rule 5.11 did not contain words like "forfeit", "extinguish" or "shall not claim" but it did have a heading with the words "Benefit forfeiture", which might be thought to provide an indication of what Rule 5.11 was about. However, Rule 1.4 of the 2000 Deed stated that "the heading to any particular clause or rule is included for convenience and does not affect the meaning of that clause or rule".

The issue the Court had to decide was whether Rule 5.11 was intended to be a forfeiture clause at all or whether it was intended to have a more limited or targeted effect.

The parties' positions

At the risk of over-simplifying the arguments put before the Court, the parties' positions were broadly as follows.


The trustee argued that the purpose of Rule 5.11 was to deal with missing beneficiaries and to prevent funds being "orphaned" or "trapped" in the Scheme. It was not intended to extinguish benefits where beneficiaries could be identified and paid, or to extinguish shortfalls where a lump sum of instalments had been underpaid.

Where the designer of the Scheme intended rights to be forfeited or otherwise extinguished, he or she used that word or equivalent language, and the Court should be slow to deprive members of benefits they had earned and which formed part of their remuneration.

Relying on an aspect of the judgment in Axminster, the trustee argued that Rule 5.11 did not contain any wording that directly dealt with the forfeiture of an entitlement to be paid arrears and that the Court should not read words of forfeiture into Rule 5.11.

If it was wrong about that, the trustee asserted that a term should be implied into Rule 5.11 such that it had no application where the trustee had not informed the member of the existence of his or her entitlement to a higher payment or the shortfall, and the person entitled had no reasonable means of knowing there had been a shortfall and that he or she needed to make a further claim.


The employer said the absence of the word "forfeiture" in Rule 5.11 was not conclusive as to the meaning and effect of the rule. The word "forfeiture" had not been used in all the rules in Lloyds, but still the Court in that case had concluded that they were forfeiture rules.

In the employer's view, the statutory history was significant: Section 92 of the Pensions Act 1995 and its predecessors all permitted the forfeiture of benefits where they had been unclaimed for six years after falling due for payment. There was no suggestion in section 92 that a right of forfeiture was limited to missing members or was only permitted where members or other beneficiaries were aware of their rights.

Moreover, the employer pointed out, the Scheme had contained a forfeiture clause since rules introduced in 1981.  In each case, the word "forfeiture" had been used in the heading but not in the body of the rule. Rules introduced in 1988 introduced what was now Rule 5.11 in the 2000 Deed and there was no provision in the 1988 rules which purported to exclude consideration of the heading, which always included the word "forfeiture". The employer argued that all later iterations of the rule should be construed in the same way, and that it was permissible to have regard to the heading to explain what Rule 5.11 was "generally about".

The employer took issue with the trustee's case based on "orphaned" or "trapped" funds, arguing that the trustee held a pool of assets on trust on which to draw to pay members' benefits in accordance with the rules. Individual members had no beneficial interests in any particular asset, so there was no question of "orphaned" or "trapped" funds.

The Court's decision

Was Rule 5.11 a forfeiture rule or not?

In a reasoned judgment, Mr Justice Leech concluded that Rule 5.11 is a forfeiture clause and should be construed so that any benefit or instalment of benefit that had not been claimed within six years of the date it fell due is forfeited and the member's entitlement to that benefit extinguished. Moreover, the judge concluded that Rule 5.11 was not limited to missing beneficiaries but applied to all unclaimed benefits once the six year period had expired.

The judge started by noting that he had initially been "strongly attracted" by the trustee's argument and was inclined to the view that the Court should be slow to allow forfeiture. However, he stated that he was satisfied that there was no real stigma attached to forfeiture clauses in pension schemes.  Indeed, despite the recommendations made in the Goode report after the Maxwell pension scandal, Parliament had never legislated to prohibit forfeiture and, indeed, had permitted forfeiture clauses in certain circumstances.

The judge noted that a forfeiture clause in a pension scheme served the same purpose as a limitation clause in a contract. It would be impossible, he said, for trustees to exercise a right to bar a claim to a benefit or instalment unless they were able to forfeit or extinguish the members' entitlement.

Turning to the language of Rule 5.11, the judge accepted that it did not use the words "forfeit" or "forfeiture".  However, he thought that the words "shall be retained…for the purposes of the Scheme" had the same effect. Rule 5.11 made no distinction between benefits unclaimed for six years because the beneficiary was missing and benefits which are unclaimed because the beneficiary was unaware of the entitlement. If the purpose of Rule 5.11 had been to draw such a distinction, the person who drafted the provision would have used clear language to that effect (and the Court noted the employer's argument that there are limitation rules which do depend expressly on the knowledge of the claimant).

In conclusion, the Court concluded that it was likely that Rule 5.11 was intended to bar stale claims by extinguishing the beneficiary's entitlement to the benefit or instalment if it had not been claimed more than six years after it had fallen due, whether or not the beneficiary was aware of that entitlement. 

Are headings and scheme 'archaeology' relevant?

The judge stated that, if there had been any doubt about the interpretation of Rule 5.11, it was appropriate to look at previous versions of the rule. Every set of rules since 1981 had included a forfeiture clause and the rules introduced in 1988 and 1995 had contained a rule in exactly the same form as Rule 5.11, which also bore the heading "Benefit Forfeiture" at a time when it was legitimate to have regard to the heading because the 1988 and 1995 rules did not contain a provision similar to Rule 1.4 of the 2000 deed.

Although the judge accepted that the heading to Rule 5.11 was convenience only and did not affect its meaning, given there had been no substantive change to the wording of the rule itself, the Court said that the obvious inference to draw was that Rule 5.11 was intended to retain the meaning it had in the rules introduced in 1988. In reaching this conclusion, the judge stated that, although he had relied on the headings in the rules introduced in 1988 and 1995 as an aid to their construction, he had not relied on the heading of Rule 5.11, even as a general indication of what the rule was about.

When is a 'claim' made?

As in Lloyds and Axminster, the Court was asked to consider when a benefit or instalment had been "claimed" for the purposes of Rule 5.11. Following the judgments in those cases, the Court decided that a "claim" must mean something more than a request to put a pension into payment. Absent a decision of the Court of Appeal, this issue now appears to have been decided.

The claim had to be made after the benefit had fallen due and it had to be an assertion of a continuing right or entitlement to the benefit or instalment that remained unpaid. That said, the judge considered that it would be possible to assert that right or entitlement expressly or impliedly, such that it was not necessary for the person making the claim to be aware of his or her right or entitlement.

Should a term be implied?

Finally, the Court refused to imply a term into Rule 5.11 such that it had no application where the trustee had not informed the member of the existence of his or her entitlement to a higher payment or the shortfall, and the person entitled had no reasonable means of knowing there had been a shortfall and that he or she needed to make a further claim.

Rule 5.11 was a forfeiture clause of general application, the purpose of which was to extinguish stale claims by forfeiting benefits unclaimed for six years. This made it unlikely that a term should be implied. If the person who had drafted Rule 5.11 had intended the forfeiture of an unclaimed element to depend on notice given by the trustee or the knowledge of the member, it would have been easy to draft a rule that operated that way.

Recoupment and the Pensions Ombudsman

As a result of the Court's decision on forfeiture, some members had been unintentionally overpaid. In that context, separate issues arose in relation to recoupment and whether the Pensions Ombudsman is a "competent court" for the purposes of section 91(6) of the Pensions Act 1995. 

Mr Justice Leech held that, where a trustee seeks to recover an overpayment by recouping from the future payment of pension, section 91(6) requires it to give a member a certificate showing the amount and the rate by which it proposes to recoup. If the beneficiary disputes the trustee's entitlement to recoup, the amount to be recouped or the rate by which the trustee proposes to recoup, the trustee may not recoup unless a court of competent jurisdiction has made an order declaring that there has been an overpayment to a particular extent. It is not necessary for the trustee to obtain an order requiring the person to repay the overpayment.

The Court was asked whether, for the purposes of section 91(6), the Pensions Ombudsman is a "competent court". Consistent with what Mr Justice Arnold (as he then was) had concluded in Burgess v BIC UK Ltd [2018] Pens LR 13, Mr Justice Leech decided that the Ombudsman is not a "competent court". 

The effect of this aspect of the Court's decision is that, where any member disputes a trustee's ability to recoup, the amount by which it proposes to recoup or the rate of the proposed recoupment, it will be necessary for the trustee to obtain a declaration from the County Court or the High Court before recouping. This aspect of the judgment may present practical challenges for trustees who wish to recoup in the face of objections from members.


There are various aspects of the judgment that may have practical implications for trustees and employers of other pension schemes.

  • Whether forfeiture is permitted or required under the rules is likely to depend on the precise wording of the provision in question. For these purposes, it is not necessary for the provision to contain express words dealing with forfeiture (e.g. "forfeit" or "extinguish") if it is otherwise clear that the rule is concerned with forfeiture. There is no stigma attached to forfeiture.
  • The "archaeology" or history of the scheme's rules may throw light on whether the parties intended that the scheme's current rules provide for forfeiture.
  • As a matter of practice, it may be more difficult for trustees to recoup when members dispute their entitlement to do so, the amount of the overpayment, the amount by which the trustees seek to recoup or the rate at which recoupment is made. This is because, in the event of a dispute with a member over recoupment, a determination from the Pensions Ombudsman will not assist the trustees because (as matters stand) he is not a "competent court" for the purposes of section 91(6). County Court or High Court proceedings will need to be issued before the trustees can obtain an order which enables them to recoup.

If you have any questions about this article, or about pensions in general, please contact Ian Gordon.

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