Trustees must document decisions on death benefits

Pension scheme trustees have been urged to document their decision-making process on the distribution of death benefits and on conflicts of interest that arise following the case of Jeannette Wilson vs The Trustee of the Adam Wilson & Sons Limited Discretionary Pension Scheme.

In October 1992, pension scheme member R Wilson specified that, in the event of his death, his pension death benefits would be distributed equally between his daughter Jeannette and three granddaughters. Five years later he took some of his pension and distributed half of the initial tax-free lump sum to his daughter and the remainder equally between his granddaughters.

However, following Mr Wilson’s death in December 2000, the trustee, being the company Adam Wilson & Sons Ltd, gave all of the death benefits, which amounted to £115,572, to Wilson’s son who was a director of that company and therefore tasked with carrying out the trustee’s responsibilities.

Wilson’s son then passed on the full sum to his daughters, who were R Wilson’s granddaughters. None of the £115,572 went to Jeannette who then claimed that the trustee was biased against her.

The deputy pensions ombudsman (DPO) ruled that the trustee had faced a conflict of interest which it resolved in the son’s favour and in doing so had failed to keep records of the process by which it reached its initial distribution decision. The DPO also said it was wrong for the trustee to exclude Jeanette from the distribution on the basis that half of an initial tax-free lump sum had been given to Jeanette while Mr Wilson was still alive.

The DPO ordered the trustee to pay a quarter of the death benefits as well as £250 in compensation for the distress and inconvenience suffered by the maladministration to Jeanette.

Arshad Khan, associate at Sacker & Partners, said that all pension scheme trustees could learn from the case. “It underlines the importance of documenting the process and in recording conflicts of interest.”