McNee (PO-2780/PO-4183) – assumption that members’ wishes had changed was incorrect
The complainant’s daughter was employed by the Royal Borough of Kensington and Chelsea (RBKC) and was a member of the LGPS. In 2005 the complainant’s daughter completed an expression of wishes form in favour of her parents. The daughter then went on to have a son in 2009 and consequently amended her will to provide for her residuary estate to be left on trust for her son. The expression of wishes form was not updated. Following their daughter’s death, the pension was paid to her son on trust, contrary to the expression of wishes form.
The Pension Ombudsman upheld the complaint by the parents as RBKC had failed to consider other potential beneficiaries. RKBC had also failed to properly investigate all relevant matters before allocating the pension to the deceased member’s son.
The decision was passed back to RBKC and directed it to pay £250 to each parent for the distress and convenience caused.
This determination is a poignant reminder that trustees need to properly and methodically investigate the deceased member’s background, before reaching a conclusion as to how benefits are to be allocated. We all know expression of wishes forms are not binding; nevertheless they should be taken seriously and seen as the default position, unless further evidence suggests otherwise.
Ramsey (PO-3290) – no employer or trustee duty to alert member about the consequences of a reduced annual allowance
By way of background, where a member accrues benefits (DB) or makes contributions (DC) that exceed the annual allowance during a pension input period, such member will have to pay a tax charge on accruals or contributions above the annual allowance threshold. The annual allowance used to be £255,000 but was reduced to £50,000 in April 2011 and has now been further reduced to £40,000.
As a result of this determination, it has been shown that a trustee or employer of a DB scheme does not owe a legal obligation to alert a member that a reduced annual allowance could make him personally liable to tax charges if he requested to receive major benefit enhancements after 6 April 2011.
The Deputy Ombudsman held that the trustee did not breach its fiduciary duty to act in the best interests of its members as the complainant at the time of requesting enhancements was not a member of the scheme. He only joined the scheme on electing to have the enhancements. The employer also had no legal obligation to alert him of the financial benefits of making that election prior to 6 April 2011, when the annual allowance was much greater and consequently the complainant would not have exceeded the annual allowance limit and become subject to personal tax charges.
Although in this example, the trustees and employer were found to have done nothing wrong, we feel they have been very fortunate. The amendments to the annual allowance regime in 2011/2012 were substantial and it appears from the information at hand, the complainant was given minimal information about this key amendment in legislation. In light of this determination, we would recommend that where possible, when there are key changes in law that may affect members of your pension scheme, you should provide potential and actual members of your scheme with as much information as possible in order to help minimise the risk of future similar claims being brought to the Pension Ombudsman’s attention.