Pensions Ombudsman decides who gets death benefit

Deciding who should receive a lump sum death benefit (or a share of it) can be difficult particularly if the member had not completed an Expression of Wishes form recently or there are complicated family circumstances.

Trustees generally do the best they can, recognising that there is not necessarily a right answer, but they must follow a robust procedure for gathering and considering all the relevant information when they make their decision.

A recent Pensions Ombudsman determination (Ms E (Allen SSAS)) was unusual in that the Pensions Ombudsman went so far as to impose his decision as to whom the benefit should be paid. Typically, the Pensions Ombudsman would refer the matter back to the Trustees to make the decision again if a complaint is upheld. 

In this case, the Pensions Ombudsman also decided that the lay trustees and the professional trustee had acted in bad faith and were not protected from liability by the scheme’s exoneration clause (which excluded liability “except to the extent attributable to his act or omission knowingly and deliberately committed in bad faith”).

The fundamental problem with the trustees’ decision in this case was that it was tainted by a conflict of interest. The lay trustees stood to benefit from their decision. The professional trustee had ostensibly remained impartial, but it should have recognised the conflict of interest and done something about it.

The Ombudsman’s decision was that:

• The lump sum death benefit should be paid to the complainant;
• The lay trustees and the professional trustee should each compensate her for distress and inconvenience (£1,000 and £2,000 respectively);
• The trustees should reimburse the complaint for any tax she had to pay as a result of the lump sum being paid more than two years after the date of the member’s death.