UK Pensions in dispute - July 2025

Trustee responsible for significant loss where death benefit paid after two-year window

A scheme has been ordered to pay over GBP50,000 by the Pensions Ombudsman (TPO) for failure to pay lump sum death benefits within a two-year window set out in the scheme’s rules: CAS-66581-S4T8.

The rules provided that benefits paid more than two years after death had to be paid in line with the member’s will, rather than the scheme’s discretionary death benefit rule. In this case, the scheme did not realise that a payment was due for three years. This meant that the member’s daughter (Mrs L), who was the nominated recipient of lump sum death benefits from the scheme but was not included in the will, was not considered for a death benefit. Instead, the lump sum was paid to Mr T, the member’s husband. As a result, Mrs L was forced to negotiate with Mr T and agree to give him GBP50,000 to secure the pension scheme death benefit.

TPO found that the trustee had failed to properly implement the Scheme Rules and breached its equitable duty of care. TPO also found that if the lump sum had been paid out under the discretionary death benefit rule, on the balance of probabilities the trustee would have paid it to Mrs L. The trustee was ordered to pay Mrs L GBP50,000 to compensate for the amount paid out to Mr T, plus legal costs, GBP1,000 for distress and inconvenience, and to cover any tax charges.

What does this ruling mean for trustees?

This case is notable for the amount of compensation ordered. It highlights the importance of having effective systems in place to ensure benefit entitlements are identified and paid quickly and in line with scheme rules. It is also an unusual case in that TPO was willing to make a speculative decision on how the trustee would have used its discretion, had it paid benefits in time. The trustee’s arguments that it would not necessarily have paid benefits to Mrs L were dismissed. Usually, TPO will remit exercise of a discretion back to trustees to consider.

Trustee did not conduct sufficient investigation to assess potential death benefit beneficiaries

In another death benefit case (always a hotbed for complaints), TPO found that, despite having conducted significant amounts of investigation in deciding on the correct recipient of a death benefit, the trustee should have done more: CAS-130671-J8K3.

The member’s personal situation in this case was complicated and before deciding on a beneficiary the trustee completed thorough investigations, including interviews with relevant parties and some of the member’s friends. However, the trustee did not directly contact two potential beneficiaries, partly on the basis that they were vulnerable, one being elderly and the other being subject to mental health concerns. TPO found that this meant the trustee had not made sufficient enquiries into the circumstances of those individuals; although they did not have to contact them directly, they could have sought more evidence on their positions through the executors or other parties.

TPO directed the trustee to reconsider the distribution of benefits, ensuring all potential dependants were properly investigated.

What does this ruling mean for trustees?

This case shows the high standard of investigation expected in difficult death benefit cases. The trustee here had been diligent in its investigation and decision-making, but was still found not to
have given sufficient consideration. All avenues must be thoroughly investigated. It also gives some guidance on the approach to be taken with potentially vulnerable parties: if it is felt that they should not be contacted directly, trustees should consider other ways of finding information to investigate their eligibility. 

No entitlement to discretionary increases

In the latest in a line of similar cases, TPO has rejected a claim from a member for entitlement to discretionary pension increases: CAS-99766-L5X6.

In this case, the scheme rules provided that pensions would be increased by the lower of 5% and RPI but, at the request of the employer, the cap could be raised to 10% in years when RPI exceeds 5%. Both the employer and the trustee were required to have regard to the "Stated Aim" of "providing annual pension increases in line with [RPI], up to a maximum of 10% per year, subject to the finances of the Scheme".

Mr Y, a member of the scheme, complained when RPI was greater than 5% but the 5% cap was applied. He argued there was a legitimate expectation of higher increases, and that the employer’s refusal to request the higher increase was a breach of its duty of good faith. Mr Y had been involved in negotiations with the employer regarding a scheme merger and said that the agreement to the Stated Aim was part of the "bargain" that was struck.

TPO rejected the complaint, finding that the employer had had regard to the Stated Aim and the finances of the scheme when making a decision not to request higher increases, so had acted in line with the rules, and had not breached its duty of good faith. The fact that the employer historically may have had a practice of granting higher increases did not constrain its ability to take a different approach in the future.

What does this ruling mean for trustees?

Discretionary increases are a real bone of contention (exacerbated by the high inflation of recent years) and a number of cases have been brought by members arguing an entitlement has been created. While it is reassuring that TPO held the line that discretionary increases are just that—discretionary—it was important that the employer in this case could demonstrate that it had given due consideration to the Stated Aim. Employers and trustees must be careful to follow the requirements of the rules when considering these discretions and record this carefully in case of future challenge.