A guide to avoiding death benefit disputes

In most pension schemes it is the trustees who decide to whom any lump sums payable on the death of a member should be paid. When reaching a decision trustees should act in accordance with their fiduciary duties; taking into account relevant factors and ignoring irrelevant factors.

However, it is clear from the number of complaints that are made to the Pensions Ombudsman, that decisions are still not being made properly by many trustees. We have seen cases where a complainant has referred the trustees of a scheme to the Ombudsman two or three times for repeatedly getting the decisionmaking process wrong, adding to the costs of running the scheme. Follow our “do’s and don’ts” guide below to avoid finding yourself in this situation.

Do:

Make sure you understand the benefits that are payable and the potential beneficiaries under the scheme rules – in some cases this may mean considering a previous set of rules.
Obtain information from several sources to verify what you are being told - this could include a member’s will, death certificate, grant of probate or letters of administration, power of attorney, expression of wish forms, financial details such as bank statements and bills, work colleagues, the solicitor dealing with the member’s estate, HR, family and friends. You should consider adopting a standard form that can be issued to the person who notified you of the member’s death and/or other relevant individuals, requesting details about the member’s circumstances to make sure you have the full picture.
Deal with potential beneficiaries sympathetically but without making any promises as to whom benefits will be paid - an initial view may change as further information comes to light.
Make sure benefits are paid within two years of the earlier of the date on which the trustees were notified of the member’s death or the date on which they should first have reasonably been expected to have known of it.
Minute the basis on which you reached your decision in sufficient detail such that it is clear you considered all relevant factors – detail the information obtained and from what sources, what was considered relevant and irrelevant, and why?

Don’t:

Just follow a member’s expression of wish form – this is only a guide to the member’s wishes at the time it was completed but is not binding on the trustees and a member’s circumstances may have changed considerably since it was completed.
Rely on only one source of information about a member’s circumstances particularly where these are not straightforward e.g. if there is mention of a spouse but children from a previous relationship. This may mean that the information gathering process is longer, but it will ensure the trustees obtain as comprehensive a picture as possible about the member’s circumstances.
Provide notification of the decision only – an explanation of the basis on which the decision was made should also be provided without infringing the privacy of other individuals. The explanation does not need to be extensive but enough for a potential beneficiary to understand the reasoning of the trustees.
Rush the decision-making process in order to pay benefits quickly – it is important to make sure you have all relevant information before making a decision. Equally do not unduly delay making a decision once you consider you have the relevant information.
Delegate the decision-making process e.g. to a committee of trustees, unless your scheme rules permit you to do so and, if they do allow this, make sure the delegation and the scope of it are clearly documented.

If you are unclear about any of the above, DO make sure you obtain appropriate legal advice.

Following this guide and obtaining appropriate legal advice may not prevent a complaint from ending up with the Ombudsman but it should enable you to successfully defend it. In order for a complaint to be upheld it would be necessary for the complainant to show that the trustees’ decision-making process was defective or that, having considered the matter properly, the decision was a perverse one.

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