Partner Philip D'Arcy, head of our Dispute Resolution team, explains who may receive a person's pension pot and/or death in service benefit when they die.
When someone dies, often his or her pension policy or death in service benefit will be a significant sum. In most cases, such funds will not form part of the estate and so do not pass under the will or intestacy. They are usually held by the Trustees of the scheme in trust. In some cases, these funds can be greater than the estate. What happens to these monies can be very important for the family and loved ones
Generally speaking, Trustees who hold the fund will have a broad discretion as to how and to whom the benefits are paid. Frequently the deceased will have made a nomination or left a letter of wishes indicating where he or she wants the fund to go. Usually this will be followed, but such nominations are not definitive and the Trustees retain discretion.
However, it is not true that the decision is entirely one for the Trustees. In certain circumstances, it can be possible to challenge a decision made by Trustees in exercise of the discretionary powers. In broad terms, what is important is that the Trustees apply the scheme rules correctly, obtain the appropriate information, take account of all relevant matters and ignore any irrelevant matters. They must direct themselves correctly in law and not come to a decision that no reasonable decision maker could have taken.
In the case of Earl v Michelin Pensions, Mr Earl died leaving a letter of wishes requesting the benefits be paid to his daughters. Since this expression of wishes however, he had remarried. The Trustees decided to pay the benefit to the daughters, and his wife complained to the Pensions Ombudsman. He upheld the complaint on the basis that the Trustees had not considered her as a possible dependant. The Trustees had not actually investigated the financial situation and extent of dependency of any of Mr Earl’s potential beneficiaries. They simply followed the old letter of wishes without giving the matter proper consideration.
If you are concerned about a decision that Trustees have made or may make, the first step is to consider the rules of the scheme. Have these been applied correctly? They may also provide a mechanism for dealing with any disputes. If not then it may be possible to complain to the Pensions Ombudsman. The Ombudsman will investigate the discretionary decision. He is concerned to ensure that the decision made was a lawful decision and that the Trustees took account of relevant information and nothing else. If the Ombudsman is not satisfied that the Trustees have acted appropriately, he will usually ask them to think again. What the Ombudsman does not do is to substitute his own discretion for that of the Trustees
The payment of death benefits can be a very important matter for the loved ones. The decision made by the Trustees can be extremely significant. Because the Trustees have discretion, it can be very difficult to challenge or overturn those decisions. However, they are open to challenge particularly where the Trustees may have proceeded solely on the basis of an out-of-date letter of wishes, not identified all possible dependants or not taken account of all relevant considerations.
If you are faced with this situation then it is always best to take advice from a solicitor.
For further information or legal advice, please contact firstname.lastname@example.org or call 0118 951 6800.
This article is intended for the use of clients and other interested parties. The information contained in it is believed to be correct at the date of publication, but it is necessarily of a brief and general nature and should not be relied upon as a substitute for specific professional advice.