Pension Ombudsman highlights need for full information when distributing death benefits

Mr N’s pension provider had decided not to pay his wife, Mrs N, any death benefit following his death. The couple had been separated for more than four years, although they remained legally married, and both were in new relationships.

In July 2019, the pension provider was notified that Mr N had died and sent a copy of his death certificate. The provider sent Mrs N’s solicitors 10 questions to be answered by the next of kin; it explained that responses were needed to assist the provider to determine the appropriate recipient(s) of Mr N’s death benefits. Mrs N responded. The provider also obtained information from other potential beneficiaries.

The provider sought confirmation from Mrs N that she was financially dependent on Mr N, or financially interdependent with him. Mrs N confirmed, through her legal adviser, that she was not financially dependent on, or interdependent with, her estranged husband at the time of his death. However, as there had been no expression of wish form (EoW), her adviser said it was clear Mr N had understood that Mrs N would be the beneficiary of any lump sum.

In November 2019, the provider paid Mr N’s lump sum, divided equally between two beneficiaries not including Mrs N. This was based on the circumstances of their separation, lack of offspring and financial dependency. The provider also noted that Mrs N had already applied for a grant of probate and was the beneficiary of Mr N’s estate.

Mrs N challenged the decision, claiming that she had paid more than her fair share of bills during their time together as her husband could not contribute, and that he had kept the deposit on their shared flat.

The provider responded that it held absolute discretion when paying out death benefits and that Mr N had not left a will or an EoW. While Mrs N had been classed as a potential beneficiary because she was still legally married to Mr N, they had been separated for some years prior to his death and Mrs N had acknowledged that there was no of financial dependency. The provider stood by its decision.

Mrs N asked the provider to confirm to whom it has awarded Mr N’s death benefits, but it refused to do so for data protection reasons.

Mrs N complained that she could not make proper representations if the provider did not provide full reasons for its decision and the evidence on which that decision was based. She also highlighted that, while she was the beneficiary of Mr N’s estate, there was little or no money left in his estate after the payment of expenses.  Meanwhile, Mr N’s parents had received a death benefit lump sum of £350,000 from his employer. Mrs N also pointed out that, if she and Mr N had divorced, the value of his pensions would have been taken into account in any settlement. She therefore considered the provider’s decision to be ‘perverse’. 

The PO said that a decision-maker must consider all relevant evidence; be satisfied that it has collected sufficient evidence to form a decision that is not perverse; decide what weight, if any, to attribute to each piece of evidence; and ask itself the correct questions. He was satisfied that the provider had followed due process and reached a reasonable decision. In particular, the provider had gathered sufficient information on which to base a reasonable decision.

The PO also noted that there is “no requirement” to share the representations of other potential beneficiaries, and that the decision-making process in these instances is “not one of claim and counter-claim”. The beneficiaries were within their rights to ask for their submissions to be confidential, and the reasons why they may not have wished their submissions to be shared was not a relevant factor that the provider needed to consider.

Simon Laight, pensions expert at Pinsent Masons, said: “This decision helpfully reinforces the principle that decision-makers have a wide latitude when distributing death benefits and that a broad range of decisions may be considered reasonable”. 

“In part, this involves obtaining sufficient information on which to make a decision. The PO confirmed that it is for the decision-maker to decide how much information they need to make a decision, and unless they have been unreasonable in reaching that judgment, it will not be a reason to invalidate their decision, even if another person may have decided to make further enquiries”, he said.

“The PO's observation that the decision-making process is not a case of claim and counter-claim is welcome, together with his confirmation that prospective beneficiaries have the right to ask for their submissions to remain confidential.”