Pippa Stephens and Brian Cantwell explore how schemes can manage the risk of poorly administering death benefits, and avoid the fine meted out to Unipart
Unipart was fined £100 for misallocating death benefits by the Pensions Ombudsman, which has warned schemes against "flights of fancy" in this area of administration.
Death benefits are paid as a lump sum to surviving members of a family or to a charity of choice upon the death of the scheme member.
The money is paid to a nominee chosen by the member in an instruction form, but any choice is at the discretion of the trustee board.
Should the death occur before retirement and the age of 75, the lump sum must be paid within two years.
Otherwise it becomes an unauthorised payment, and is subject to a tax charge of 55%.
The scheme was further asked to reconsider its death benefit allocation decision by deputy pensions ombudsman Jane Irvine.
Legal advisers have called on schemes to manage the risk of similar maladministration through a clear separation of responsibilities, and by considering all relevant documents and beneficiaries in their decision.
Deceased Unipart member George Crossan was a “death benefit-only” member of the scheme, having worked at the sponsor company as a service engineer for five years.
Following his death on September 11, 2008, a senior manager at Unipart approached Crossan’s son at the funeral and handed him a form assessing his eligibility as a death benefit recipient.
Crossan’s son decided to complete the form after his imminent wedding; meanwhile, describing herself as Crossan’s late partner, “Ms A” secured the £55,461 benefit after writing to the scheme one month after the funeral.
When the former employee’s son then wrote to the scheme outlining his eligibility, disputing the 12 years Ms A said she had been together with his father, he was provided with an out-of-date legal definition of death benefits from before 2004.
After consideration, the ombudsman concluded maladministration and determined the trustees must disregard their earlier payment and retake their decision within 28 days. Crossan's son was awarded £100 compensation.
A Unipart spokesperson said: “We were satisfied the late Mr Crossan lived with Ms A for a significant period prior to his death and had a close relationship with her for many years.
"The trustees felt the statements from his work colleagues were consistent with this position and there was no inherent contradiction.”
Getting a clear picture
Ambiguity surrounding who should receive the benefits can lead to difficult scenarios for trustees.
Having a clear process in place will negate problems in this area, saving schemes from ombudsman fines and time wasted retaking decisions.
Venetia Trayhurn, senior associate at CMS Cameron McKenna, said in practice there was a separation of roles in working through this process.
She said: "The administrators would go through the deceased members circumstances; investigating potential beneficiaries, checking the expression of wish form, and then it will tend to be the case that they will put together a pack of documentation for the trustees to consider.”
Completing all the checks by trustees may be easier in small schemes, she added, but in general it is more the responsibility of the administrative staff.
Trustees should ensure beneficiaries provide “all the information” – for example a copy of the expression of wish form, the marriage certificate or the children’s birth certificates.
If the scheme suspects dishonesty, Trayhurn said the scheme must put the question to the family member, while being sensitive around bereavement.
She added: "It’s not uncommon for people to not give the whole picture the first time around but that doesn’t necessarily mean that they’re intentionally being deceitful.”
Anne-Marie Winton, partner at Nabarro, stressed the importance of trustee training in preventing situations arising such as those experienced by Unipart.
She said: “It seems an insensitive approach but also a very superficial understanding of how to distribute a death benefit. You don’t know whether they ask people to fill in forms at every funeral.”
Keeping in step
Kim Parsons, casework director at the ombudsman, said if a complaint was issued, the organisation would check trustees followed a “proper process” and considered “relevant matters”.
A relevant matter could be that the trustee looked at the potential range of beneficiaries, while an irrelevant matter would be for trustees to not follow the scheme rules and go “off on a flight of fancy” in terms of who might get the benefit.
Trustees found to be committing maladministration in this area are most likely to be asked to revisit their decision with a timeframe usually of 28 days. If distress and inconvenience are found, compensation of £100 to £250 could also be issued.
