Ombudsman upholds complaint where death benefit decision based on fraudulent statement

The Deputy Pensions Ombudsman (DPO) has upheld a complaint from a deceased member’s daughter where the pension provider paid the whole of a lump sum death benefit to the member’s son on the basis of the son’s fraudulent claim that he was the deceased’s only child (CAS-84909-V2W7).

The member died intestate.  A lump sum death benefit of £61,514 was payable under discretionary trusts.  The list of potential death beneficiaries under the scheme rules included the member’s spouse, children and dependants and any person nominated in writing by the member.  

Following the member’s death, the then scheme administrator obtained a copy of the member’s death certificate, contacted Mr C, the member’s son, and asked him to complete a questionnaire so that it could decide on the distribution of death benefits.  Mr C falsely claimed that he was the member’s only surviving child when in fact there were four surviving children. After being provided with copies of the member’s death certificate and Mr C’s birth certificate, the scheme administrator paid the full lump sum death benefit to Mr C.  The fraud subsequently came to light. Mr C was prosecuted and received a suspended prison sentence.  The member’s daughter, Ms N, complained to the scheme administrator.  The scheme administrator maintained that the administrator at the time was not at fault, and that it would be unreasonable to expect the administrator to make a further payment in respect of lump sum death benefits.

The DPO said that it was not unreasonable for a pension scheme to adopt a proportionate approach when distributing lump sum death benefits and to carry out more limited investigation when the lump sum death benefit was of low value.  However, responsibility for identifying potential beneficiaries and gathering sufficient information about them remained the responsibility of the person exercising discretion under the rules.  Where unverified information was provided by a person claiming to be the sole beneficiary, it might be prudent to consider the possibility of fraud and the need to take extra steps to ensure proper information was obtained.

The DPO concluded that as the misinformation resulted in a complete failure to identify and consider other potential beneficiaries who were as closely related to the member as Mr C, it was appropriate to direct the administrator to make its decision afresh, having first carried out appropriate enquiries to identify potential beneficiaries and obtain relevant information about them.  The DPO directed the administrator to ignore the fact that payment had already been made to Mr C, and to notify Ms N of the factors considered by the administrator in reaching its decision.

Our thoughts

This determination highlights the risks in relying on information from just one person when exercising a discretion in relation to lump sum death benefits, particularly where that one person is not named on an expression of wish form and is providing information which suggests that they should receive the full lump sum.