In a determination that will be of general interest, the Pensions Ombudsman (PO) has concluded that it was reasonable for the trustee of a self-invested personal pension (SIPP) to delay making a decision on the distribution of death benefits in order to give the deceased member's adult children time to provide further information. The circumstances of the case included allegations by the children of financial irregularities, including possible fraud, against the member's current partner, Mrs Barnicoat, whom he had nominated to receive the death benefits six months before he died.
The PO dismissed a complaint by Mrs Barnicoat, who was eventually awarded the member's death benefits nearly a year after her partner’s death. She claimed that the delay while the trustee looked into the children's allegations caused her financial loss and considerable distress, a situation she said was exacerbated by the trustees' decision to keep the details of the children's claims confidential.
The PO held that although the trustee could have been more proactive in checking the truth of the allegations where possible and keeping the member updated without breaching confidentiality, it had acted fairly and reasonably in the exercise of its discretion. In doing so, it had balanced the need to obtain accurate information against the “legitimate desire to protect people's confidentiality”.
Mrs Barnicoat's unmarried partner, Mr Bunn, was a member of the Hargreaves Lansdown Vantage SIPP and had two adult children and several grandchildren from a previous relationship. In March 2012, Mr Bunn completed a death grant nomination form in favour of Mrs Barnicoat. He died six months later, on 14 September 2012. Mrs Barnicoat was not a beneficiary under Mr Bunn's will, which named his two children as executors. The SIPP's rules gave its trustee, Hargreaves Lansdown Asset Management Limited (the Trustee), discretion to pay death benefits to a wide range of potential beneficiaries, including anyone the member had nominated, his relatives or a beneficiary of his estate.
Mrs Barnicoat gave the Trustee details of her financial position and relationship to Mr Bunn. However, Mr Bunn's children told the Trustee that his relationship with Mrs Barnicoat had broken down and that they needed time to obtain evidence about alleged financial irregularities around the time he died in relation to unauthorised bank account access and the proceeds of a property sale. The Trustee said that the nature of the allegations was not relevant and would not lead it to conclude that it should not follow the nomination form. However, it said that given the serious nature of the allegations, including fraud, it would give them more time to provide new information to demonstrate their relevance. It also agreed to maintain confidentiality and not to give Mrs Barnicoat copies of the children's evidence, which later included medical reports, financial transaction records and details of a potential police investigation.
The Trustee did not inform Mrs Barnicoat of the delay until 1 March 2013, for which it apologised and later offered £500 as compensation for any distress and inconvenience caused. It also said that she would receive the death benefit as sole beneficiary unless Mr Bunn's children supplied relevant evidence.
Between April and August 2013, the Trustee continued to press Mr Bunn's children for evidence to back their challenge and on two occasions set 14-day deadlines for them to do so. On each occasion, the children requested more time to allow them, variously, to instruct solicitors, await probate (which they said would allow access to relevant documents) and liaise with the police, a private investigations agency and fraud departments at several financial institutions. Mrs Barnicoat also instructed solicitors, who complained to the Trustee that it had supplied very little information about the nature of the children's challenge. At this time, the Trustee offered to make her an interim payment, which Mrs Barnicoat twice rejected.
On 28 August 2013, the Trustee informed Mr Bunn's children that as they had not supplied any further relevant evidence, it could delay no longer. It informed Mrs Barnicoat's solicitors the same day that she was the sole beneficiary of the death benefits and, after considering further submissions from Mr Bunn's children, paid the SIPP benefits to her on 9 September 2013 (that is, just under a year after Mr Bunn's death). These were used to provide a capped drawdown pension plan of £3,727 a year beginning on 1 February 2014.
Mrs Barnicoat complained to the PO that unreasonable delays by the Trustee in paying her the death benefits caused her financial loss because she had to live on her own assets after Mr Bunn's death and annuity rates had fallen by the time her drawdown pension was secured. She had refused the interim payment offer as she thought she would have to repay it if she was not awarded the death benefits. The process would have been expedited if she had known and been allowed to counter the “unfounded allegations”. She engaged solicitors (costing £2,000) because the Trustee would not give her full information and did not tell her she could consult the Pensions Advisory Service.
Among other things, the Trustee submitted that if it had been able to give Mrs Barnicoat a full explanation, it might have reached a decision much earlier and that, with the benefit of hindsight, it was possible that Mr Bunn's children had exaggerated their claims. But at the time it was considering the information the children had supplied and their confidentiality request, it was prudent not to assume they were lying, especially given the allegations of fraud. In relation to the interim payment offered to Mrs Barnicoat, the Trustee submitted that it was obvious that she would not have had to repay this money.
The PO dismissed the complaint.
HMRC rules allowed the Trustee a period of broadly up to two years after Mr Bunn's death to make the payment of the death benefits. In exercising its discretion, the Trustee was under a duty to act reasonably, set aside any moral or other prejudices, and also to consider all relevant facts, including any nomination form, but ignoring anything that was irrelevant.
In particular, the Trustee should:
- check whether there had been any change in Mr Bunn's domestic or financial circumstances which might cast doubt on the validity of the wishes expressed in the nomination form, without assuming that any failure to change the nomination was an oversight;
- ask itself if there were any reasons not to award the death benefits to Mrs Barnicoat and determine whether there were any other parties financially dependent on Mr Bunn who had not been nominated and might have been deserving of a pension or lump sum;
- investigate Mr Bunn's family background carefully before deciding, fairly and reasonably, who should receive the death benefits;
- handle the investigation of personal and financial information following a death and against a potentially acrimonious background involving “very emotive issues” with “appropriate sensitivity” while balancing the need to obtain accurate information against the “legitimate desire to protect people's confidentiality”.
The PO stated that the decision was not clear cut and "[g]iven the range of discretion, there was unlikely to be only one answer that was to be regarded as 'right' with all others being wrong", something the potential beneficiaries clearly found hard to understand. In these circumstances, it was therefore reasonable of the Trustee to allow Mr Bunn's children additional time to conclude their private investigation and comply with their request not to disclose the reasons behind the investigation to Mrs Barnicoat.
Although he dismissed the case against the Trustee, the PO noted that it would have been preferable for it to have been more proactive in the matter by, for example, discreetly checking the truth of the information presented by Mr Bunn's children, where possible, and giving reasons to Mrs Barnicoat for the delay without breaching confidentiality.
He also noted that Mrs Barnicoat had not mitigated the loss she claimed as she had refused the interim payment and that he did not think she needed to engage a solicitor, particularly as their involvement would not have affected the Trustee’s ultimate decision. The £500 offered by the Trustee for the “significant distress and inconvenience” caused to Mrs Barnicoat in dealing with the matter was already a reasonable amount in the circumstances.
The decision to dismiss the complaint is seems sensible in these circumstances. The full details of the allegations made by the deceased member's children are not available and so it is difficult to evaluate the pension provider's conduct in delaying the payment of death benefits pending its investigation.
This determination is a reminder that when a provider or trustee is required to exercise their discretion over death benefits, this is often not straightforward. On the one hand, it is effectively required to make payment within two years so as to avoid tax charges. On the other hand, interested parties may reasonably expect the trustee to gain a thorough understanding of the underlying background, which may take some time to establish.
However, in this case the benefit payment was made well before the end of the two-year window, so the complainant's submission that it should have been made earlier was unlikely to find favour with the PO. It is therefore also unsurprising that the PO refused to reimburse her expenditure in pursuit of her complaint.
View the determination.