What decisions can trustees make?
Trustees have a duty to consider all potential beneficiaries and we have seen from the scenarios that they can have some difficult decisions to make.
Let’s look at how they can reach decisions.
Also the reading material in the Reference Section "How to avoid the Pensions Ombudsman” gives some helpful information in Section 7.
Beneficiaries
The trustees must work out who the potential beneficiaries are. This means asking lots of questions which is difficult when dealing with a bereaved family so at all times the trustees must act with sensitivity.
A beneficiary is anyone who is entitled to, or who might receive, a benefit from the scheme, now or in the future. The scheme rules will define who can be classed as a beneficiary and on the death of a member these may include:
A beneficiary may be entitled to a portion of the lump sum, a dependant’s pension or both.
Member’s wishes
A common problem for the trustees is that an expression of wish form does not exist, in this case the rules will also state the procedure for the trustees to follow.
If the form is out of date and for example the member has remarried or has other children, it could mean that new relationships come under the definition of beneficiaries within the rules.
A child or partner may have been omitted from an expression of wish form. The trustees cannot just accept this, they must find out why if no explicit reason has been given by the member.
The trustees must consider the expression of wish form and the weight that is to be attached to it.
They must investigate the family circumstances and all relationships with the member by talking to the member’s family, friends and colleagues from work. They should also obtain, if available, a copy of the member’s will to identify individuals who have any interest in the member’s estate.
Financial Dependency
When identifying potential beneficiaries trustees should consider the age of the potential beneficiary and the relationship with the member.
They must make proper enquiries to find out the current circumstances and obtain evidence to see if the potential beneficiary was financially dependent on the member when the member died and to what extent the dependency existed. This is to help ensure that funds are equitably distributed.
Does the potential beneficiary meet the definition of financial dependency in the scheme rules?
For example:
A financially dependent child could be an adult, for example if they were a carer for the member or, their financial relationship was one of mutual dependence. The scheme rules would set out the criterial to determine mutual dependence.
For lump sums there is no requirement for a beneficiary to be financially dependent on the member but, dependence may be a factor in the exercise of trustees’ discretion.
Exercising discretion
The trustees must build up a picture of the member’s life, pull all the information together and record the factors being taken into account.
Once this is done any inconsistencies should be identified and investigated further so there is a clear picture.
Decisions must be based on the facts, not assumptions or who the trustees consider to be most in financial need.
Keeping a record of the factors helps trustees assess whether their decision could be viewed as one which "no other reasonable decision maker faced with the same evidence would come to” (as quoted by the Pensions Ombudsman).
The Pensions Ombudsman also advises that trustees should inform interested parties of their decision and give reasons if appropriate.
