PO determination reaffirms decision-making principles for pension schemes

The decision followed a complaint that a pension provider had failed to properly consider a deceased member’s wishes by distributing his lump sum death benefit to his estranged daughters rather than his 10 living brothers and sisters. The deceased member in question was unmarried and had no financial dependents, and he noted in his will that he had no contact or financial ties with his three daughters.

On notification of his death, the provider notified the solicitors responsible for the estate that there was a discretionary death benefit payable. The solicitor completed and sent a ‘bereavement information form’, filled out with the details of the member’s 10 siblings and three daughters.

The provider notified the solicitors that it considered the daughters to be potential beneficiaries. In response, the solicitors provided the pension provider with a copy of the member’s will, which noted his estrangement from his daughters. The provider provisionally confirmed that it now considered the siblings to be potential beneficiaries and provided payment forms which were later completed and returned.

However, the provider continued to consider the claim, explaining that it needed to gather as much relevant information as possible to make an informed decision. As part of this process, the provider contacted the three daughters, who did not indicate the existence of any family rift or dispute.

The provider ultimately made the decision to pay the death benefits to the member’s daughters as his next of kin, on the basis that the deceased’s siblings were not financially dependent on him.

The solicitors made a complaint to the PO in January 2024. In April 2024, the provider exercised its discretion to pay the lump sum death benefit to the three daughters.

As part of the complaint, a sister of the deceased submitted that the will was an important piece of evidence that should have been given significant weight by the provider when making its decision, and that there had not been proper consideration of her brother’s clearly expressed intentions and the evidence of his long-standing family circumstances She claimed the siblings should be paid the lump sum, plus an additional £1,000 to cover their expenses in dealing with the dispute.

The provider submitted that as it had decided to distribute the death benefits to the closest surviving blood relatives (the daughters), there were no grounds for it to split this benefit with the member’s siblings. However, it admitted that it had erred in sending the payment forms for the siblings to complete.

When reviewing such cases, the PO examines the appropriate evidence that has been obtained and considered, whether applicable scheme rules and regulations have been correctly applied, and whether the decision is supported by the available relevant evidence. Where decision-makers have acted in accordance with these principles and within their powers under the trust deed and rules, the PO will rarely overturn the decision merely because it might have come to a different conclusion. 

In a contested situation like this, there are various sources of information to consider, and it is for the decision-maker to review the information and decide what weight to apply to the different factors and considerations. A decision to give little or no weight to any of the evidence is not the same as failing to consider it.

In this case, aside from the member’s will, there were other sources of pertinent information, namely: that the member had no financial dependants; he had made no nomination in respect of his pension benefits; that there was no reference to pension arrangements in the will; and that the daughters were direct descendants, and his closest surviving blood relatives.

In particular, the PO noted that for members who die before age 75, as in this case, there was a discretion under the scheme rules to pay a lump sum on death to their relatives, their nominated beneficiaries, any person entitled under the will to an interest in the estate, and any personal representatives. Accordingly, the provider had ultimate discretion on how the lump sum benefit should be paid – whether split or in full – and to whom.

Given the complex circumstances and family dynamics, the PO said the decision was not straightforward, but it considered that the decision-making process was properly conducted and considered all available evidence. Ultimately, the decision not to award the sum to the member’s siblings fell “within the bounds of reasonableness”, and the complaint was dismissed.

The PO noted that the provider had mistakenly sent payment forms to the solicitors for the siblings to complete and return, which amounted to maladministration. However, it did not consider that the siblings had suffered sufficient distress and inconvenience to merit a £500 non-financial injustice award.

The decision serves as a cautionary tale on the importance of pension scheme members appointing nominated beneficiaries for lump sum payments, particularly in circumstances where a member’s will or estate is likely to be contested due to complex family dynamics. Providers may wish to conduct periodic exercises to remind members of the importance of completing and updating beneficiary nomination forms.

Where, as in this case, pension death benefits are payable on a discretionary basis, this determination helpfully provides a clear description of the principles that need to be followed when undertaking discretionary decision-making.