The distribution of death benefits might be something that thankfully trustees have to deal with fairly infrequently, but is often fraught with difficulties and can be highly emotive for all concerned.

The fact that a member has died is really only a starting point and the real issue is a good old fashioned trustee discretion being put into practice.

If you asked most well versed trustees what they need to consider when exercising a discretion you might reasonably expect them to recite that they must consider all relevant factors and dismiss all irrelevant factors.  But when it comes to deciding what to do with death benefits things can sometimes go astray, especially if there is a complicated family story in the background.

Two recent Pension Ombudsman determinations shed light on just what a tricky path trustees need to tread and serve as a useful reminder of the steps that must be followed.

In Harrison (PO-2759), the deceased had filled out a direction in respect of survivor benefits when he applied for a personal pension plan, a Scottish Equitable drawdown policy, in 1999.  At that time he made that direction in favour of his common law wife Mrs G Harrison. There then followed another form in July 2000 in similar format to the 1999 form, which showed Mrs G Harrison's name again, but with a diagonal line crossing her out. This in turn was followed by two death benefit nomination forms, the first from September 2000 nominating the complainant (who was the deceased's son) and his two sisters in equal shares and the second from October 2011 nominating just the complainant alone.

Aegon, as administrator of the plan, indicated to the deceased's IFA that they held a survivor's nomination indicating Mrs G Harrison which had the effect of making the death benefit nomination irrelevant.  The IFA disputed this referring to the striking out of Mrs G Harrison's name in 2000 and saying that there had been no ongoing relationship for the last ten years.

A protracted to-ing and fro-ing followed whereby Mrs G Harrison produced a court order showing support payments from the deceased for the benefit of their daughter.  Aegon originally dismissed this as evidence of dependency and then later upheld that Mrs Harrison did in fact qualify and was entitled to £113,000.  The deceased's son obviously contested this and brought the matter to the Ombudsman.  Aegon's position to the Ombudsman was that they did not query the July 2000 form which showed Mrs G Harrison's name struck out because this document did not affect her having been nominated previously.

The Deputy Pensions Ombudsman (The Deputy Ombusman) made it clear that it was not her role to disagree or agree with Aegon's decision on who should receive the death benefits, indicating that her role was to establish whether key principles had been followed by the decision maker.

As one might expect, the Deputy Ombudsman did not agree with Aegon's position on the crossed-out nomination form and said that, as it appeared to rescind a previous nomination, they should have queried it.  They should have asked the correct questions of why Mrs G Harrison had been crossed off in July and why, shortly after, the deceased had nominated his son and daughters.

The outcome was not that the complainant became entitled to the death benefit but that Aegon was guilty of maladministration as it had not properly exercised its discretion and therefore had to go back and consider it afresh.

The story was quite similar in the complaint of Siegfried (PO-1427).  This again concerned death benefits payable on the death of an unmarried member.  The deceased had previously lived for a number of years with the complainant and they had two children together but were living apart at the date of death.

On notification of the death, the trustees asked for a copy of the death certificate, wedding certificate and will so they could determine what benefits would be payable.  Seven days after providing the death certificate the complainant was paid a refund of the deceased's contributions to the scheme without any further correspondence.

A few months later the complainant enquired about whether a spouse's pension would be payable to her or the children.  Minutes of trustee meetings indicated that there was a belief that the complainant was not financially dependent on the deceased and whether they lived at the same address should be checked.  Ultimately the trustees wrote to the complainant indicating that they were minded to pay pensions to the children but would be offsetting the return of contributions she had already received.

The complainant sought to prove her dependency on the deceased but the trustees stood by their original decision.

The Deputy Ombudsman's view was that the rules of the scheme required exercise of discretion in relation to both a spouses/children's pension and a refund of member contributions.  Her problem with what had transpired in this case was that, after receiving the death certificate and confirmation they were not married from the complainant, the trustees made no further enquires. They therefore had not followed a proper process as they should have been considering all options. She also had concerns about their approach to "dependency" as they had not asked for any financial information and they were wrong to be focusing on just who lived where, as financial dependency and co-habitation were not the same thing.   The ultimate conclusion was that the trustees had failed to ask the correct questions, misinterpreted the rules, took irrelevant factors into account and did not make reasonable enquiries before reaching their decision.  They were therefore ordered to go back and make a wholly new decision.

These two decisions reiterate how important it is that trustees follow the proper decision making process if they do not want their actions (or inactions) examined by the Ombudsman.  Even though the Ombudsman will not change the decision itself (the trustees will usually be required to reconsider it), no trustee wants a finding of maladministration against them.    It is perhaps even more important to make sure you follow the rules precisely when there may be no discretion involved.  The case of NHS v Wheeler and another [2014] EWHC 2155 (ch) both highlights the emotive nature of death benefit distribution and the requirement to pay strictly no more than the correct benefit.

This was an appeal from a Deputy Ombudsman's decision. The facts were that a locum doctor had been working shifts at a GP practice during a particular week and was due to be returning on Monday morning but had died unexpectedly over the weekend. A death benefit was paid to his Estate but then a number of months later the Health Authority wrote to the deceased's executors claiming that payment had not, in fact, been due as he was not in pensionable service at the time of death.

Unsurprisingly, having used the payment to settle debts of the deceased's Estate, the executors challenged this.  When this matter reached the Deputy Ombudsman she directed that there had been maladministration and the executors had changed their position by settling the Estate's debts thus the Health Authority should be restricted to seeking recovery of the net remaining assets only.

Most of the appeal centred around the jurisdiction of the Deputy Ombudsman and also the "change of position" of the executors.  The outcome was that even though the executors had already used the money they had been paid, as the Estate was insolvent anyway there was no detriment and so the Court found that there should be no restriction on the Health Authority seeking recovery of the full amount that had been overpaid.  Of course, having appealed and achieved this result, it remains to be seen whether it is a hollow victory – with the Estate insolvent, the eventual recovery might only be token.

We move now from a locum doctor not being entitled to full death benefits because he died between shifts, to another case which must have been particularly difficult to deal with.

The facts of the case of Oxer-Patey v The Commissioner of the Police for the Metropolis [2013] EWHC 4751 (QB) saw a police officer die in service before his child was born.  The Police Pensions Regulations 1987 only permitted a child's pension to be paid to a child conceived, but not yet born, at the date of death if the parents were married or in a civil partnership. As the deceased and the child's mother were not married the child was denied a pension.

The child claimant's case was that as the Regulation in question excludes an illegitimate child from an entitlement a legitimate child could benefit from this was discriminatory and contrary to Articles 1 and 8 of the First Protocol to the European Convention on Human Rights, so the restriction must be disregarded.

The Court agreed with this view, noting that case law made it very clear that weighty reasons would have to be advanced before a difference of treatment on the grounds of birth out of wedlock could be regarded as compatible with the Convention.  After declaring that the discrimination could not be justified the Court awarded the child a pension backdated three years to her birth.

And to end this look at death with birth itself, in an evolving world of medical advances it can be hard to fit old and new concepts together.

One such little known complexity that impacts on pensions is in relation to "test tube" children.  For the most part society would regard a child created from a frozen embryo of two natural parents as the natural child of both the mother and father.  But the legal reality can in some cases be quite shockingly different.

If a couple choose to freeze embryos for use at a later date, perhaps because of impending health issues, both parents need to be alive when that embryo is used to "conceive" for the child to enjoy full legal status.  If sadly the father was to die before conception occurred then under the Human Fertilisation and Embryology Act 2008 he is not legally treated as the father of the child except to the very very limited extent of being named on a birth certificate.  This of course can have very unexpected consequences when it comes to pensions for the deceased's offspring as the child would not legally be considered his child. Dependency may also be very hard to prove given it looks to dependency at the date of death, not anticipating that the life may only start after that point in time. A tricky issue to deal with indeed.