Pensions update | June 2024

This month we take a look at:

• Pensions case law
• The Society of Pensions Professionals ESG guide
• Pensions and The Labour Party's manifesto  

Pensions case law: Trustee failed to exercise discretion for the beneficiary of death benefit

The Deputy Pensions Ombudsman has upheld a complaint brought by the widow of a late member regarding the scheme trustee’s distribution of death benefits.

The member’s benefits were held in trust for his ex-wife. There was no evidence that the trust was revoked or amended following the member’s divorce or subsequent marriage to the complainant. The scheme rules originally stated that the trustee could pay a lump sum, if it was satisfied that the pension policy was subject to a valid trust, to the trustee(s) of that trust.

However, the rules were subsequently replaced by a deed of amendment in 2017, which allowed the trustee to, at its absolute discretion, make payment to an eligible recipient or the trustee(s) of any trust.

The member died in September 2017, shortly after the new rules were implemented. Following his death, the trustee informed the complainant that it was legally obliged to pay the death benefits to the ex-wife, the named beneficiary of the trust.

The complainant disputed the trustee’s decision, claiming that she was entitled to the death benefits as the beneficiary of the late member’s estate. However, the trustee responded that the member’s will could not override the trust as pension benefits fell outside the estate, and that any discretion granted under the new rules ceased to apply once the member’s benefits were placed in trust.

The Deputy Ombudsman found that the trustee had failed to apply the new rules or update its internal processes to allow it to administer the rules properly. The trustee had also failed to understand the implications for members following the adoption of the new rule.

This amounted to maladministration. The Deputy Ombudsman explained that, under the new rules, the trustee had the option to pay the death benefits either to an eligible recipient or to any trust. However, by continuing to treat the trust as binding (as if the former scheme rules still applied), the trustee had failed to exercise its discretion under the new rules and consider the complainant as an eligible recipient.

The Deputy Ombudsman ordered the trustee to reconsider its decision regarding the distribution of the late member’s death benefits, in line with the new rules, and to pay the complainant £1,000 for the serious distress and inconvenience caused.

This case highlights the need for trustees and scheme administrators to fully understand the legal consequences of all rule changes and it is always prudent to take legal advice where there are complicated personal circumstances on the payment of death benefits.

Pensions environmental social governance

The Society of Pensions Professionals has published a guide for pension trustees to help them comply with ESG governance obligations.  Building on the 2023 guidance, this update includes case studies and checklists on each of the separate elements of the ESG duties.

A copy of the guidance, published on 20 June 2024, can be found here. For further support in applying this guidance, please do get in touch.

The General Election 2024 – The Labour Party and pensions

On 13 June 2024 the Labour Party published its Manifesto 2024: Change, outlining the party's plans in relation to pensions law and policy. The Manifesto includes proposals to:

• Carry out a review of the pensions landscape to consider what further steps are needed to improve security in retirement and to increase productive investment in the UK economy.
• Adopt reforms to ensure that workplace pension schemes "take advantage of consolidation and scale, to deliver better returns for UK savers and greater productive investment for UK PLC".
• Require UK-regulated financial institutions, including asset managers and pension funds, to develop and implement "credible transition plans that align with the 1.5°c goal of the Paris Agreement".
• Keep the triple lock mechanism in place for increases to state pensions whilst adopting reforms to workplace pensions "to deliver better outcomes for UK savers and pensioners".

Labour also made a commitment to "end the injustice of the Mineworkers' Pension Scheme" saying it will review the "unfair surplus arrangements and transfer the Investment Reserve Fund back to members".

Notably absent, was any mention of restoring the LifeTime Allowance which was abolished earlier this year.  Previously Labour had suggested it would look to restore this, but this was not included in their Manifesto. 

For further information and advice, please contact Céline Mather-Franks.