The Pensions Ombudsman has ruled for a second time on how the trustees of a pension scheme approached their discretion to distribute a lump sum death-in-service benefit.
The deceased member had completed a nomination form saying that he wanted any lump sum death benefit to be paid to his two adult daughters from a previous marriage. Some time after completing the form the member met the complainant and they married during the following year, remaining so until his death five years later. The nomination form was never updated. The Trustee Board decided to pay the lump sum to the member's daughters.
The Ombudsman first ruled on this in 2009, finding that there had been maladministration by the Secretary to the Trustee Board and the Board as a whole. Discretion was vested in the Secretary by the rest of the Trustee Board to decide 'straightforward beneficiary cases' (defined as cases where there is a surviving spouse or 'a clear and valid nomination form' and in either situation 'no complications').
The Secretary did not know about the deceased's marital or relationship status at the time the nomination form was completed. The relative financial positions of the member's widow and daughters were also unknown. The written brief given to the Trustee Board referred to the nomination form but did not say that at that stage the member had not yet met his future wife. The brief also did not mention that the member's widow was not the mother of the two adult children.
Following the first Ombudsman ruling, the Trustee Board reconsidered the matter but did not change its decision. It felt that it would be 'too invasive of their personal privacy' to investigate the financial circumstances of each of the potential beneficiaries.
The complainant challenged the decision once more, arguing that the Trustee Board had failed to examine its previous decision as if doing so for the first time, as required by the Ombudsman when giving his first ruling. The Trustee Board emphasised that the nomination form was the only direct evidence of the member's wishes. It said that it took into account the fact that the member had not met his future wife when filling out the form but did not update the form despite reminders sent out to members twice in the intervening period.
The Ombudsman succinctly summarised the core principles of decision-making when Trustees are considering whether to exercise a discretionary power vested in them:
"In reaching their decision, the Trustee Board needed to ask the right questions, construe the rules correctly and take into account all relevant matters but no irrelevant matters. They were required not to come to a perverse decision, ie a decision which no other reasonable decision maker faced with the same evidence would come to."
The Trustee Board concluded that the member might have wished the lump sum to be paid to his children because the complainant was receiving the spouse's pension and the member's estate would pass to her.
The Ombudsman thought that it was wrong of the Trustee Board to attempt to guess what the member's wishes might have been. In the words of the Ombudsman:
"It is one thing to give potentially relevant facts no weight once aware of them. It is another to decide in advance that as yet unknown information will be ignored, when it could make a difference".
The Ombudsman also did not agree that it would have been too invasive of the potential beneficiaries' personal privacy to establish their financial circumstances. Here, the Board did not ask the complainant directly for her financial details. It concluded that the member and complainant were financially interdependent because they were married and living together, whereas the complainant has described herself as the member's 'sole dependant', which could mean a high degree of dependency or absolute dependency. The Board should also have made enquiries of the daughters' financial dependency.
Are trustees detectives?
The trustees in this case were faced with an expression of wish form completed before the member's personal circumstances changed significantly on his subsequent marriage. It was clear that the trustees had applied the wrong test in attempting to second-guess the deceased member's wishes, rather than applying themselves to the requirements of the scheme trust deed and rules and their duties under case law.
However, this decision does raise questions about the extent to which trustees should carry out their own investigations in a bid to choose the lump sum death benefit recipients. The Ombudsman appears to be suggesting that trustees should approach their discretionary powers a little like a detective would, but in an open, potentially invasive, way both in deciding who is in the relevant class and how their competing claims to be paid the benefit are to be decided. There is more to the decision-making process than donning a deerstalker hat, however.