In the recent case of PO, Complaint by Mrs D, 2019 PO-20255 the Pensions Ombudsman has ordered the pension provider Phoenix Life to reconsider its original decision to award an entire lump sum death benefit to a deceased member’s most recent partner and must now consider potentially benefiting the deceased’s estranged wife.
The deceased and his widow separated in 2007 though remained married, and the deceased had a new partner at the date of his death. An Expression of Wishes form had been completed by the deceased at some point before the separation in 2007, never revised it following the separation.
The deceased also made a Will that sought to dispose of his various pension death benefits. Clearly, each case turns on its own merits and there was evidence that both the widow and new partner were financially reliant, to some extent, on the deceased at the date of his death.
A complaint was made to the Pensions Ombudsman by the widow regarding how Phoenix Life had handled the claims process and the complaint was upheld because Phoenix Life’s procedures were found to be non-compliant in this instance.
The Ombudsman determined that Phoenix Life’s decision to ignore the Expression of Wishes in favour of the widow, and to award the entire lump sum death benefit to the new partner must be reconsidered in light of the representations made by the widow during the complaints process. In particular the extent to which each woman was financially reliant on the deceased should be investigated further, in order for an informed decision to be made by the scheme administrators.
What is an Expression of Wishes? A Form of Discretion...
An Expression of Wishes (EOW) form is a document that can often be completed by a member of the pension scheme telling the scheme administrators who they would like them to pay the death benefits to upon their death.
As demonstrated in the above case an EOW form, sometimes referred to a ‘nomination form’, is non-binding. The scheme administrators do not need to follow the wishes and they can exercise their discretion accordingly. Assuming the scheme administrators follow the wishes set out in the EOW form there are two key associated advantages with putting in place an EOW form:
- Where an EOW form is in place the value of the death benefits does not normally form part of the deceased member estate so, as such, are not subject to Inheritance Tax.
- As the death benefits do not form part of the deceased member’s estate, a Grant of Representation is not usually required by the scheme administrators in order to pay over the benefits. In most cases the death benefits can be paid over relatively quickly, in comparison to assets in the deceased member’s estate that do require a Grant of Representation.
What is the alternative to an Expression of Wishes? A Form of Direction...
Some people might feel uncomfortable with the lack of control in determining where the death benefits should be paid when an EOW form is put in place.
It is possible to put in place a binding direction, instead of the EOW form. A binding direction requires the scheme administrators to make the payment in accordance with the terms of the direction. However, where a direction is put in place, the payment will normally form part of the deceased member’s estate for Inheritance Tax purposes and the payment will usually only be made once the scheme administrators are provided with the Grant of Representation. Hence losing the two important advantages associated with completing an EOW form.
It is important for people with pensions to liaise with their pension provider regarding the options available and consider taking financial advice. It is also important to consider taking legal advice regarding how pensions interact with your Will and the potential, as set above, for pension death benefits to pass outside your estate and not under a Will.
For further information regarding later life planning and Wills please contact me on 01283 214231 or at m.kelly@timms-law.com
