In a case involving a section of the Railway Pension Scheme, the Ombudsman has held the scheme administrator and the employer partially liable for the tax incurred as a result of a lump sum death benefit being paid outside the two year window for paying the death benefit tax free (Mrs NiR CAS-55335-N3F2). 

However, the Ombudsman only made an award for two thirds of the tax rather than the full amount, holding that the potential beneficiaries has been partially responsible for the delay.

Facts of the case

The member's employer had been informed of the member's death the day after it occurred.  It appears that under the arrangements adopted by the Scheme for payment of death benefits, the scheme administrator required a formal notification of death from the employer.  The employer would only provide this once it had received the member's death certificate.  The employer attempted to obtain the death certificate by contacting Ms N who was the deceased member's partner and the individual listed as his next of kin.  However, the employer apparently found it difficult to make contact with Ms N and did not receive a death certificate from her.  However, the employer was contacted by the member's ex-wife who informed it that the original death certificate was held by the member's children from a previous marriage, but that she was sure it would be possible to obtain a death certificate.  Approximately one month after the member's death, the member's adult daughter from his previous marriage also contacted the employer to notify it of the member's death.  

Despite the contact from surviving family members other than Ms N, the employer allowed a 15 month period to elapse during which it made no attempt to chase up the obtaining of the death certificate.  The scheme administrator took the view that it could not progress the case and contact potential beneficiaries until it had received official confirmation of the death in the form of the death certificate.  After the death certificate was provided by one of the member's children, further complications emerged, including that the employer knew the member by a different name to that which appeared on the death certificate.  The benefit was eventually paid after the two year deadline for paying it tax free had expired.

Ombudsman's determination

The Ombudsman ordered the administrator and the employer to each pay one third of the tax incurred as a result of late payment of the benefit.  The Ombudsman acknowledged that it might have been the employer's normal practice to obtain the death certificate from the deceased member's next of kin, but where the normal practice was not working, the Ombudsman said it was incumbent on the employer to obtain the death certificate from one of its other contacts rather than doing nothing.  The Ombudsman criticised the administrator for ignoring its responsibility to ensure that death benefits were paid in a timely manner.  There had been a 15 month period during which, in the absence of a death certificate, the administrator had taken no action to progress the matter.

The Ombudsman did not order the employer and administrator to pay an amount equal to the full amount of tax incurred because he felt that some responsibility for the delay rested with the member's next of kin, potential beneficiaries and representatives of his estate.

Our thoughts

This case illustrates the importance of seeking to progress all death benefit cases promptly rather than allowing delays to build up in relation to cases that present more complex issues.  Normally a scheme's trustees could be expected to bear some responsibility for late payment of death benefits.  In this case the scheme administrator was a wholly owned subsidiary of the scheme trustee and it appears that the decision-makers at the trustee were never actually made aware of the member's death at all.

Jade Murray

Jade Murray

Partner, Pensions
United Kingdom

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