In his determination in the case of Dr G (PO-18953), the Ombudsman has ordered a scheme's administrator to give reasons for its decision regarding the distribution of death benefits held on discretionary trusts.
The scheme rules gave the scheme's administrator broad discretion regarding how the deceased member's fund was distributed. The member was survived by his partner of 5 years as well as his children (who appear to have been adults at the date of the member's death, though the determination is not clear on this point). The member and his partner had jointly owned their house (the member owning 10% and the partner 90%). In his will, the member provided for his partner to be able to continue to live in the house rent free for the rest of her life, and to inherit "all domestic and associated assets, including vehicles". However, his residual estate passed to his children in equal shares. A few months before purchasing the house, the member had completed an expression of wish form which named only himself.
The scheme administrator decided to pay the whole of the death benefit to the member's estate, with the result that none would go to the member's partner. The partner complained to the Pensions Ombudsman. The scheme administrator provided a list of the factors it had considered. However, it was not clear from these why the administrator had made the decision that it had.
The Ombudsman's determination says, "[The scheme administrators] say that the factors which were taken into consideration in reaching its decision were clearly set out in the minutes. No reasons were given for its decision though. I consider the absence of any documented reasons to support a decision as indicating that there were in fact no supportable reasons for the decision. Documented reasons need not themselves be lengthy but should be sufficient to convey to the reader an understanding of the factors which have been given some weight. It may also be appropriate to record why some factors have been discounted. The reasons should be sufficient to enable an aggrieved party to know whether there are grounds to challenge the decision." The Ombudsman ordered the scheme administrator to reconsider the distribution of the lump sum death benefit, fully document the rationale for its decision and communicate this to the complainant.
The question of whether it is a good idea to record reasons for a decision is not clear cut, and we think the issue needs to be considered on a case by case basis. If it will in practice be obvious how the information considered has led to a particular decision, we think there can still be a strong case for recording the information considered, but not a separate set of reasons for the decision. If reasons are not recorded with great care, there is the risk that the recorded reasons will themselves end up becoming the basis for a legal challenge. However, if it would not be obvious how the decision relates to the information considered, it may be sensible to consider whether to record reasons, although great care needs to be taken with this as this can then provide a relatively easy legal basis for challenging the trustees' decision.
This case suggests that if the Ombudsman is faced with a case where trustees have decided to pay nothing to a member's cohabiting financially interdependent partner of several years, the Ombudsman is likely to expect the trustees to provide at least some indication of why that decision was reached, and may direct the trustees to provide reasons if no such indication is provided.