Trustees’ decision set aside in death benefits case

This article looks at a recent case in which the Deputy Pensions Ombudsman set aside a trustees’ decision in a death benefits case due to failure of trustees to follow proper process.

28th July 2014

This article looks at a recent case in which the Deputy Pensions Ombudsman set aside a trustees’ decision in a death benefits case due to failure of trustees to follow proper process.

The Deputy Pensions Ombudsman has set aside a trustees’ decision in a death benefits case because the trustees failed to ask the correct questions, misinterpreted the scheme rules, took into account irrelevant factors and did not undertake reasonable enquiries before reaching their decision. The case serves as a useful reminder to trustees on how to exercise their discretionary powers and the importance of proper process.

Background to the case

Mr Jackett was a deferred member of the pension scheme who died leaving behind two children and a partner, Miss Siegfried, with whom he had co-habited for a number of years but had never married. At the time of Mr Jackett’s death, he and Miss Siegfried were living apart.

The scheme rules provided for payment of a spouse’s pension to anyone married to the member on his death. If there was no spouse, the trustees had discretion to instead pay a dependant's pension to one or more financial dependants. If no spouse’s or dependant’s pension was payable, a refund of contributions was payable to one or more beneficiaries, selected at the trustees’ discretion from amongst the categories of person listed in the scheme rules. This included spouse, siblings, financial dependants and persons notified to the trustees by the member to be considered as a recipient of death benefits.

Following his death, the scheme trustees, CIC Credit Industriel et Commercial, requested Mr Jackett’s death certificate, will and marriage certificate in order that they could decide what benefits were payable from the scheme. Miss Siegfried provided the death certificate and confirmed that there was no will and that she and Mr Jackett were unmarried. Without making any further enquiries, the trustees then paid Miss Siegfried a refund of Mr Jackett’s contributions to the pension scheme. In particular, it is not clear that the trustees even considered whether Miss Siegfried fell within one of the named classes of beneficiary entitled to receive the lump sum benefit before making payment to her. There was also no evidence to suggest that any other potential beneficiaries were considered for payment of the lump sum. In addition, the Trustees paid the lump sum without considering what other benefits might be payable under the scheme rules.

Miss Siegfried wrote to the trustees and questioned whether any of the spouse’s pension was payable to her or the two children. The minutes of a trustee meeting shortly afterwards noted that the trustees did "not think that unmarried partners of deferred members qualify for a dependant’s pension or children’s pension". Another meeting took place some time later and it was agreed that Miss Siegfried was not financially dependent on Mr Jackett (although no questions or investigations were made to confirm this) and therefore only the two children would receive dependants’ pensions. When, at a later stage of her complaint, Miss Siegfried provided statements that she had in fact been receiving fortnightly "alimony" payments of £600, the trustees assumed that the payments were meant for the children, again without making further enquiries.

Miss Siegfried appealed the trustees’ decisions to the Ombudsman’s office

What did the Ombudsman decide?

Miss Siegfried’s appeal was upheld by the Ombudsman who directed the trustees to make a wholly fresh decision and to pay Miss Siegfried £750 for the distress and inconvenience caused.

The decision states that, in exercising their discretionary powers, trustees must follow certain basic principles. They must:

(i) ask the correct questions;

(ii) direct themselves properly in law, in particular they must adopt a correct construction of the scheme rules;

(iii) take into account all relevant, but no irrelevant factors;

(iv) not arrive at a perverse decision i.e. a decision to which no reasonable body could arrive.

In this case, the trustees failed to ask the correct questions, misinterpreted the scheme rules, took into account irrelevant factors and did not undertake reasonable enquiries before reaching their decision.

 What are  lessons can learned?

Although this case related specifically to the distribution of death benefits, it sets out the general principles trustees should follow when exercising any of their discretionary powers. It also shows that, where these principles have clearly not been followed, the Ombudsman is prepared to step in and order that a fresh decision be made.

When making decisions on the distribution of death benefits, trustees should firstly ensure they have a proper understanding of all potential benefits payable and all potential beneficiaries under the scheme rules. They should then carry out full investigations and collect all appropriate evidence before making a decision, being very wary of making assumptions without basis, and then make their decision on the basis of only relevant factors.