Failure to exercise discretion properly – The case study of Mr D

Mr D became a member of LF Stakeholder Pension Scheme in April 2005 and added his spouse, Mrs D, as his nominated beneficiary to receive 100% of his benefits following his death. After his death, Mrs S, as one of the executors of the Estate, complained that Link has failed to exercise its discretion correctly in distributing the lump sum death benefit from the Scheme. 

Mr and Mrs D were in the process of divorcing and had agreed a divorce settlement. The deceased’s benefits were to be held in trust for Mr D’s children until they reached age 21 including any residual Estate. However, his pension nomination form was not amended, and the nominated beneficiary was his wife.  

Mr D sadly died on 9 October 2015. Mrs S was initially told payment would be made to the Estate. But the Scheme subsequently received a claim from Mrs D. Mrs S was then told payment would be made to Mrs D and payment was made in April 2016. 

In 2018 Mrs S complained to the Pensions Ombudsman. Following an adjudicator’s opinion, the Scheme agreed to revisit their decision and did so in October 2018. Their decision however remained unchanged.

The Ombudsman upheld the complaint because the Rules of the pension scheme allowed for the payment of the lump sum death benefit to one or more beneficiaries as the scheme administrator deemed fit. 

Both Mr D’s children and the Estate were potentially eligibly beneficiaries. But it was found that their potential entitlement had not been considered sufficiently. Furthermore, the reasons for the scheme’s preference to support certain assumptions was unclear, and there was no evidence it had considered whether to apportion the lump sum or pay in its entirety to one beneficiary.

The Ombudsman told the pension scheme to reconsider its decision.

Related determinations

• LF Stakeholder Pension Scheme (PO-28593)