Death benefits – where there’s a will there may not be a way
The Pensions Ombudsman has upheld a complaint from a surviving spouse that a scheme failed to consider all of the circumstances of possible beneficiaries of a discretionary death benefit grant, as well as failing to correctly interpret the deceased member’s will. This case is a reminder that trustees should investigate and consider the evidence properly when deciding the distribution of death benefits. Failure to do so could lead to complaints from disgruntled beneficiaries and could place trustees (and other decision makers) in the unsatisfactory position of not being able to rectify the decision without Pensions Ombudsman intervention.
Mr S (CAS-45793-J6Y3)
Mr S was a pensioner member of the Local Government Pension Scheme (the “Scheme“) who died leaving a widow (“Mrs S“), a son who was at university and two sons from a previous marriage, both of whom were around the age of 40 and not financially dependent on Mr S. A discretionary death grant of over £150,000 was payable to the relatives of Mr S.
Mr S had not completed a death benefit nomination form but had left a short will leaving his estate to Mrs S with the family home being held on trust for the three children after Mrs S’s death. The house could not be sold without the consent of Mrs S.
The Council decided to exercise its discretion to distribute the death grant equally to Mrs S and the three sons. Mrs S appealed the decision under the Scheme’s internal dispute resolution process, arguing that such a decision was contrary to the wishes of Mr S who had arranged his affairs so that his children only benefited from his estate on the death of Mrs S. The Council’s original decision was upheld and so Mrs S complained to the Pensions Ombudsman.
The Pensions Ombudsman upheld Mrs S’ complaint on the following grounds:
- The Council had failed to adequately consider the financial status of the three children and the degree of their financial dependency on Mr S – particularly the two adult sons; and
- The Council had misinterpreted the will and disregarded the fact that Mrs S was the sole beneficiary thereunder and that the three children would only benefit under the will on her death.
The the Pensions Ombudsman directed the Council to reconsider the matter and pay Mrs S £1,000 compensation for distress and inconvenience.
Payment of death benefits is an area that frequently gives rise to complaints, particularly as it is common for the decision maker to have discretion over these decisions under the scheme rules (or legislation, as in this case). Usually, these powers vest in the trustees of the scheme who tend to rely on the scheme’s administrators for access to scheme records and details from potential beneficiaries to help inform their decision. In some cases the administrators make delegated decisions on behalf of the trustees.
This case is a reminder that trustees must not merely revert to their (and/or their administrator’s) “normal”, historic practice. Whilst in this case the the Pensions Ombudsman did not go as far as to say that the Council had limited or “fettered” the discretion by following historic practice, this rigid approach to decision making could be seen as doing so which would be contrary to a trustee’s fiduciary duties. Care should therefore be taken to ensure that:
- Appropriate enquiries are raised of all beneficiaries;
- Evidence is considered carefully (with advice sought where there are doubts or questions); and
- Decisions are made based on such evidence (and not merely on past practice).
This case also serves as a reminder of the potential consequences of not following a proper decision-making process. Rights given cannot easily be taken back after the event. So, in addition to (rightly or wrongly) facing complaints from disgruntled beneficiaries it also places trustees (and other decision makers) in the unsatisfactory position of not being able to rectify the decision without the Pensions Ombudsman’s intervention, which trustees will want to avoid financially and reputationally.
Make sure you think through what the evidence shows when deciding on the distribution of death benefits- failure to do so could land you in hot water with the Pensions Ombudsman.