Liam Fitzgerald: Once any IDR procedures have been exhausted, the only option for those pursuing a dispute against trustees of a life-cover-only scheme is to make a claim in the courts
Many employers will provide a lump sum benefit on the death in service of an employee. Depending upon the arrangements in place, these benefits may be paid from the employer’s workplace pension scheme, or from a separate death-benefit-only or group life arrangement.
In either case, there are usually trustees responsible for distributing death benefits in accordance with the scheme rules. There are often a number of potential beneficiaries and the trustees will need to consider who should receive the lump sum payable. Investigations need to be handled sensitively and trustees often need to balance the competing interests of beneficiaries. It's not surprising, therefore, that disputes sometimes arise.
Limits of Ombudsman jurisdiction
Complaints about death benefits always feature in the top ten most common complaints dealt with by the Pensions Ombudsman (PO). In these instances, the PO can investigate how decisions concerning the distribution of death benefits were made – but not all workplace pensions fall within the PO's jurisdiction, so the PO will not be able to help resolve all death benefits disputes.
The PO's powers to determine disputes are set out in legislation. The PO can determine disputes in respect of occupational pension schemes and personal pension schemes, as defined in law. A scheme which only provides lump sum death benefits (often known as a death-benefit-only scheme, a life-cover-only scheme, or a group life scheme) is excluded from the statutory definition (although this was not always the case). As a result, the PO cannot currently consider disputes relating to these schemes.
Guidance from the Pensions Regulator (TPR) on paying lump sum death benefits confirms that death-benefits-only schemes are not occupational pension schemes, noting that these schemes are also not occupational pension schemes for the purpose of regulation by TPR[1].
It's not clear how many complaints are being rejected by the PO because they relate to death-benefits-only schemes. According to the most recent available data, in 2022/23 the PO closed 5,438 complaints during the assessment stages, of which around 14% were due to a formal decision that the complaint was outside the PO's jurisdiction[2] - although of course not all these complaints will relate to death-benefits-only schemes.
However, it is evident that the jurisdictional ‘loophole' leaves some beneficiaries with no avenue of legal redress if they are unable to resolve disputes directly with the trustees.
It is unlikely that beneficiaries would be able to bring a complaint against the trustees to the Financial Ombudsman Service (FOS). FOS explains that it "can only look at a complaint about a workplace pension if it's about the way it's been administered by an Financial Conduct Authority (FCA) regulated business"[3] and "all other complaints are dealt with by the Pensions Ombudsman". In most cases, the trustees of a life-cover-only scheme are not part of an FCA-regulated business (and, even if they are, it is unclear whether FOS would accept jurisdiction when the separate trustee role pushes the meaning of "administration").
There is a memorandum of understanding in place between the PO and FOS[4], but this deals principally with circumstances where there is potential overlap of jurisdiction between the ombudsmen; it does not cover cases that might fall outside the statutory remit of them both.
Position unlikely to change
The position looks unlikely to change in the short term. The PO has been reviewing its operating model as part of its efforts to tackle a historic caseload backlog and the rising demand for its services. The PO wants to reduce queue length and waiting times and, amidst funding constraints and a shortage of specialist pensions expertise, has been exploring "all potential options for improved efficiency"[5].
As part of this review, the PO is keen to ensure that it receives the "right" complaints. The PO says it will be implementing changes over the next 12-18 months, in particular by providing clearer information and signposting for customers "so that the number of invalid applications we receive is reduced" and also "robust triage" over the complaints it takes on[6]. The PO is targeting effective pre-application communication and says it will work with the pensions and regulatory sector to ensure complaints are appropriately signposted to the best people to resolve them.
Against this backdrop, it seems unlikely that the PO will have the appetite to lobby for an extended jurisdiction. This is understandable, but the result will seem arbitrary to many complainants. A situation persists whereby some individuals can access free, expert, independent dispute resolution services and others (with identical complaints) cannot.
Once any internal dispute resolution procedures have been exhausted, the only option for those pursuing a dispute against trustees of a life-cover-only scheme is to make a claim in the courts – but the complexity and costs burden would be unwelcome to all the parties involved in a dispute.
Liam Fitzgerald is a pensions litigation expert at Pinsent Masons
