Trustees entitled to recover winding-up lump sum paid after member’s death

The Pensions Ombudsman (TPO) has upheld the right of trustees to seek repayment of a winding-up lump sum from a member’s estate where the member had died before the winding-up lump sum was repaid (CAS-89142-L1R8).

The scheme administrator had written to the member, Mr O, in February 2021 offering him the opportunity to exchange his pension for a one-off winding up lump sum, and Mr O had accepted the offer shortly afterwards.  Mr O died on 30 March 2021.  Unaware of Mr O’s death, the scheme administrator paid a lump sum of £11,764.39 into Mr O’s bank account on 5 May 2021.  The administrator became aware of the possibility of Mr O’s death on 11 May 2021 after receiving the results of the scheme’s monthly mortality screening.  On 12 May and 8 June 2021, the administrator sent letters to Mr O’s address asking his next of kin whether Mr O had died.  On 15 June 2021 Mr O’s son-in-law confirmed that Mr O had died.  The death certificate was sent to the administrator later that day.  The administrator immediately wrote to back explaining that as Mr O had died before the lump sum was paid to him, he was not eligible to receive it.  It said that the lump sum could not form part of Mr O’s estate and needed to be returned to the scheme.  This led to Mr O’s son, Mr L, acting on behalf of Mr O’s estate making a complaint to TPO.

TPO found that the Finance Act 2004 did not allow a winding-up lump sum to be paid after a member had died, and that it was therefore clear the Mr O’s estate was not entitled to receive the payment.  TPO rejected the argument that the scheme had entered into a contract to pay Mr O the relevant amount, finding that it was clear that the nature of any agreement was that a winding-up lump sum would be paid, and that, as a result of Mr O’s death, payment was no longer possible.

Mr L said that the lump sum had been spent on Mr O’s funeral and outstanding bills.  TPO considered whether this gave rise to a “change of position” defence to the claim for repayment, but concluded that it did not, as the funeral costs and other outstanding bills would still have been settled in any event given that the total value of Mr O’s estate was over £200,000.