In the case of Mr Y (PO-17599), the Deputy Pensions Ombudsman (DPO) has ordered a scheme to re-take its decision regarding the distribution of a lump sum death benefit where the lump sum had been paid to the member's estate without considering payment to various potential beneficiaries.
The case illustrates the importance of genuinely exercising discretion rather than sticking rigidly to fixed principles, and considering potential beneficiaries regardless of whether the individuals in question have put themselves forward as such.
The deceased member belonged to the Local Government Pension Scheme. He died without leaving an expression of wish form. Shortly before his death, he had made a will which provided for the repayment of debts to his parents and for the remaining estate to be paid two thirds to his niece and nephews and one third to his ex-partner.
The scheme rules allowed the lump sum death benefit to be paid to a member's nominee, personal representatives or any person appearing to the administering authority to have been a relative or dependant of the member.
The scheme administrator was informed of the member's death by the member's father, who was asked to complete a "Death grant information form". This disclosed that the member had left no spouse, co-habiting partner or children, and that the member's parents were his next of kin. The form also contained an "Additional information" box which asked for details of any other person, information or significant event which the scheme should consider when making a decision about the lump sum. In this box, the member's father only provided details of an AVC and possible transfer into the scheme.
The scheme's internal guidance provided that where the member left no nomination, surviving spouse/civil partner/co-habiting partner or children, payment would normally be made to the member's estate. Following this guidance, the scheme decided to pay the lump sum to the member's estate. The member's parents complained about the decision. Their position on what they thought should have happened to the lump sum appears to have varied during the complaints procedure, but a consistent thread was that they did not want the member's ex-partner receiving any of it.
The DPO held that the decision process had been flawed, as the administering authority had failed to consider paying to the member's parents or to the niece and nephews in their own right, all of whom were persons appearing to be relatives of the deceased and therefore potentially eligible for payment under the scheme rules. She ordered the scheme to reconsider its decision to pay the benefit to the estate, and to give reasons for the decision and details of the information taken into account in reaching it.
This case illustrates some important principles regarding exercising discretion regarding the payment of lump sum death benefits. The first is that exercising discretion means exactly that! Following fixed principles without considering whether those principles are actually appropriate to the specific circumstances in question will render the decision-making process flawed. The second is that trustees need to apply their own minds to the question of what information is relevant, rather than confining their deliberations to points included in information-gathering forms. If scheme trustees are on notice of persons who are potentially eligible beneficiaries, they should consider whether to make a payment to those persons regardless of whether those persons have been put forward as such.