Standard Life Self Invested Personal Pension Scheme · CAS-66878-V9C2

CAS-66878-V9C2

Ombudsman’s Determination Applicant Mrs S

Scheme Standard Life Self Invested Personal Pension Scheme (the Scheme)

Respondent Standard Life Assurance Limited (SL)

Outcome

Complaint summary

Background information, including submissions from the parties The sequence of events is not in dispute, so I have only set out the key points. I acknowledge there were other exchanges of information between all the parties.

The Scheme is administered by SL, in accordance with the Standard Life Self Invested Personal Pension Scheme Trust Deed and Rules, effective from 27 February 2017, (the Rules). Of particular relevance is rule 8 which covers the payment of a death benefit lump sum if the member died before they claimed their benefits.

Rule 8 states:

“Uncrystallised Funds Lump Sum Death Benefits

8.1 If a Member died with a Pre-Pension Date Member’s Fund, the Scheme Administrator will, as soon as practicable and subject to Rules 8.2 and 8.3, pay out the Pre-Pension Date Member’s Fund as an Uncrystallised Funds Lump Sum Death Benefit:

(1) in accordance with any specific provision regarding payment of such sums under the contract(s) applying to the Arrangements in questions; or

1 CAS-66878-V9C2 (2) if (1) is not applicable and at the time of the Member’s death the Scheme Administrator is satisfied that the Member directed the Scheme Administrator to pay any death benefit to a valid trust under which no beneficial interest in that benefit can be payable to the Member, the Member’s estate or the Member’s legal representatives, to the trustees of that trust; or

(3) if (1) or (2) are not applicable at the discretion of the Scheme Administrator, to or for the benefit of any one or more of the following in such proportions as the Scheme Administrator decides:

(a) any person, charity, association, club, society or other body (including trustees or any trust whether discretionary or otherwise) whose names the Member has notified to the Scheme Administrator prior to the date of the Member’s death;

(b) the Member’s Dependents;

(c) the parents and grandparents of the Member or the Member’s surviving spouse or Civil Partner and any children and remoter issue of any of them ;

(d) any person, charity, association, club, society or other body (including trustees of any trust whether discretionary or otherwise) entitled under the Member’s will to any interest in the Member’s estate;

(e) the Member’s legal personal representative.”

The Rules define “beneficiary” as: “…a Dependent or a Nominee or any other person chosen by the Scheme Administrator from the list of beneficiaries described in Rules 7.7 and 8.1...” The Rules provide that “dependent” is given the same meanings as under paragraph 15, schedule 28 of the Finance Act 2004 (the 2004 Act). See appendix for relevant extracts of the 2004 Act.

The Scheme Terms and Conditions provide, under section 12:

“12. Death benefits from the savings pot

12.1 This section describes the death benefits that are payable from your savings pot.

After we are notified of your death we will normally:

a) sell all of the assets held for you under the scheme; and

b) pay the cash proceeds into the SIPP cash account;

before distributing them to your beneficiaries or using them to provide a pension for your beneficiaries.

…

Lump sum death benefit 2 CAS-66878-V9C2 12.2 We may pay a lump sum death benefit from your savings pot. We will decide who would receive a lump sum death benefit, and how much, from the list of beneficiaries described in the rule. You can help us make this decision by giving us the name of the nominees to whom you would like us to pay the lump sum death benefit. These can include the trustees of any trust that you have set up. We will take your views into consideration, but we are not obliged to follow them unless you have given us a binding instruction to pay the lump sum death benefit to the Standard Life bypass trust.”

On 20 October 2017, Mr S completed an expression of wish form (EOW) and nominated Mrs S to receive 100% of Scheme’s value upon his death. The EOW contained the following statement:

“Are your instructions binding

Normally, any instruction you give us in Part 3 about who to pay the death benefit to is only an “expression of wish” and is not binding. This means that Standard Life Assurance Limited, as administrator of the Scheme, will decide who should receive the death benefit, taking into account all relevant matters, including your expression of wish.”

On 13 March 2020, SL sent Mr S a new EOW and confirmed that he had previously nominated his wife, Mrs S, as the beneficiary for the Scheme benefits.

On 13 May 2020, Mr S completed his last will and testament (the Will) under which he named ten individuals as recipients of his estate. These were, his wife, Mrs S, his two children from a previous marriage, his sister and two parents, his former father and brother in laws, and Mrs S’ two nieces. He appointed Mrs S and Max Engel Solicitors (the Solicitors) as the joint executors of his estate. Under the provisions of the Will, Mr S left his two children £150,000 each, £10,000 to each of his parents and £5,000 to his sister.

On 21 September 2021, Mr S died.

On 23 October 2020, Mrs S informed SL that Mr S had died.

On 26 October 2020, a SL representative, from its bereavement team, telephoned Mrs S to go over the potential Scheme death benefits, and to identify any potential beneficiaries. During the telephone call, Mrs S explained that Mr S completed an EOW, in 2017, and that he had a son and a daughter from a previous marriage.

On 27 October 2020, SL emailed Mrs S and said:

“Standard Life Assurance Limited, as the Scheme Administrator, will decide who to pay the death benefit to. The Scheme Rules allow us to pay to any person or persons who fall within the classes of beneficiary set out in the

3 CAS-66878-V9C2 Scheme Rules, in such proportions as we decide. This is called exercising our discretion.

When exercising our discretion, we will consider the deceased’s personal circumstances and family situation. We will also take into account any ‘expression of wishes’ submitted to us by the deceased, however, please note that any such wishes are not legally binding on us. We will then distribute the death benefit by paying an amount to, or for the benefit of, any beneficiary or beneficiaries chosen by us.”

On 4 November 2020, the Solicitors emailed SL and provided a copy of Mr S’ death certificate and the Will, and confirmed that:

• Mr S and Mrs S met each other in February 2010 and were married by February 2012. There were still together at his date of death with Mrs S caring for Mr S up until his death.

• Mr S was paying £500, each month, to his ex-wife to help support their two children who were ages 21 and 17. He also contributed an additional £150 a month to his daughters’ university cost of living.

• Mr S was only required to pay child maintenance until each child finished secondary school. Both of the children had now left secondary school, however, Mr S voluntarily continued to pay £500 a month.

• Mr S made arrangements for his children, parents and his sister, through the Will, which should have be taken into consideration when deciding on how to distribute the Scheme death benefits.

• Mr S suffered from a debilitating illness, and he was unable to leave his home in 2020. This meant that towards the end of his life he was cared for solely by Mrs S.

• It was understood that Mr S completed an EOW nominating Mrs S to receive all of the Scheme benefits.

On 11 November 2020, SL wrote to each of Mr S’ children and asked if they were financially dependent upon Mr S at his date of death, and if they wished to be considered as potential beneficiaries.

On 17 November 2020, Mr S’ children responded to SL and confirmed that they wished to be considered as beneficiaries for the payment of any potential benefits. They explained that they were financially dependent upon Mr S at his date of death and reiterated the figures provided by the Solicitors.

On 19 November 2020, SL exercised the discretion available to it under the Rules and decided to split the Scheme death benefits between Mrs S and the two children. SL record of the decision explained that:-

4 CAS-66878-V9C2 • Mrs S was awarded 60% of the value of the death benefits as she was the sole nominee on the EOW and the recipient of the residual funds from Mr S’ estate.

• The two children were awarded 20% each of the death benefits as they were under the age of 23 and financially reliant on Mr S. This was in addition to each of the children being legacy beneficiaries under the Will.

• It took note of the provisions made under the Will for payments to be made to the children, Mr S’ parents and his sister.

• Mr S’ parents and sister were not considered for a share of the death benefits as they were not dependents, nor were they named on the EOW.

On 26 November 2020, the Solicitors responded to SL and asked for an explanation of why Mrs S was awarded 60% of the Scheme benefits. They also asked who the remaining 40% was awarded to.

On 3 December 2020, SL explained to the Solicitors that:

• it was unable to provide the names of the other beneficiaries;

• the Scheme death benefits were payable under the discretion afforded to it by the Rules;

• it was required to take into account any, and all, potential beneficiaries, when making a decision on how to split any benefits;

• the EOW was not legally binding, though it was considered during the decision- making process; and

• it said:

“In some instances, the nomination form may have been completed many years prior to the death and the circumstances of the plan holder’s life may have changed. In accordance with HMRC rules we also have to consider any dependents that the plan holder may have.”

On 7 December 2020, Mrs S submitted a formal complaint in regard to the decision made by SL to split the Scheme benefits. She said, in summary, that:-

• She was now aware that the two other beneficiaries were Mr S’ children, one of whom had offered to pay her share of the benefits to Mrs S, in line with the EOW. However, she told each of the two beneficiaries to keep the funds paid to them by SL.

• Mr S only transferred funds into the Scheme on 27 October 2017, thereafter, completing the EOW, nominating her to receive the benefits in full.

5 CAS-66878-V9C2 • In March 2020, he did not change, or amend, his EOW after he was reminded of his original nomination. So, it was incorrect for SL to infer the EOW was old, or might have been out of date.

• Mr S made a generous provision in the Will to be awarded to his children upon his death, that being £150,000 each. SL should provide an overview of why it did not follow Mr S’ wishes, as set out in the EOW.

• It was unclear if her own financial position was taken into consideration; whether she could afford to pay her mortgage; that his ex-wife, and subsequently his children, benefited from a generous divorce settlement; and that he overpaid on child maintenance for more than four years.

On 8 January 2021, SL provided its response to Mrs S’ complaint and said:-

• It reviewed the decision to split the Scheme benefits between three beneficiaries and its view remained that the decision was reasonable in light of the evidence collected.

• The Rules allow for SL to pay Scheme death benefits to any individual(s) who met the definition of dependent(s), in such proportions as it decides.

• When the details of all potential beneficiaries had been collected, it reviewed the personal circumstances of the policy holder at the time of their death. This takes into account anyone who is financially reliant on the policy holder.

• While the EOW was considered during the decision-making process, SL was not bound, or legally required to adhere to the nominations made under it. This also included the provisions made under the Will, as the Scheme benefits were discretionary and did not form part of Mr S’ estate.

• The process of exercising discretion was not made on the basis of claim/counter claim of the interested parties. It was a decision made on the basis of relevant factors and evidence.

• During the exercise of discretion, SL did not attempt to review the relationship between potential beneficiaries and the policy holder, nor were any moral judgments made.

• None of the information provided by Mrs S was sufficient enough to mean that a different decision should have been reached, or that the decision needed to be re- considered.

• It recognised that a mistake was made in stating that the Scheme could have been old, or that the EOW might have been out of date. It apologised for any distress this may have caused and offered her £200.

On 8 January 2021, Mrs S wrote to SL and said that it had only written to Mr S’ two children. It did not appear that all of the potential beneficiaries had been contacted. It 6 CAS-66878-V9C2 seemed unlikely that SL took into consideration, or asked for evidence, in regard to the beneficiaries financial situations. If it had, it would have discovered that Mr S had overpaid on child maintenance by some £12,000.

On 15 January 2021, SL informed Mrs S that the ways in which death benefits were handled, under the Scheme, were outlined in the “Guide to death benefits” booklet. It explained that:-

• A “bypass trust” was available to Mr S, and if this option was selected, SL would pay the Scheme benefits into the bypass trust, after Mr S’ death. Thereafter a trustee is appointed who can decide on how benefits are distributed, and to who.

• As Mr S did not setup a bypass trust, it was for SL to decide how to distribute the benefits. The death benefits payable were discretionary, so they did not form part of the Estate, and were not subject to inheritance tax.

• SL was not legally required to follow the instructions of an EOW, or a Will. After conducting a thorough investigation into Mr S’ circumstances, taking into account any and all potential beneficiaries, the decision was made to split the death benefits between three beneficiaries.

On the same day, Mrs S said:-

• She was unsure how Mr S would have known about a bypass trust, when his health was quickly deteriorating and no one at SL had informed him of it.

• By paying benefits to Mr S’ two children, SL had reduced the amount that could be payable outside of the estate.

• It took SL two weeks to arrive at a decision on how to distribute the death benefits between herself and the two children. So, she was unsure how thorough the investigation could have been in such a short timeframe.

• It appeared that the additional information that SL was in receipt of, was given more weight in its decision-making process, than Mr S’ own EOW.

• She was not contesting the decision to pay benefits to Mr S’ two children, nor the split of the benefits each of the children was awarded. She was however, contesting the way in which the decision was reached.

• Before a decision was made about the death benefits, she should have been asked if she wanted to provide any additional information/evidence.

On 2 February 2021, SL provided its final response to Mrs S complaint and explained that:-

• The Scheme was an advised pension product, which meant that it would only be purchased after the member obtained financial advice. Mr S was advised to transfer into the Scheme.

7 CAS-66878-V9C2 • Information on the bypass trust was readily available to members and their financial advisers. SL expected all regulated financial advisers to be aware of the bypass trust provision when advising their clients on the best options for them and their family.

• Identifying any dependents was a key component in deciding how the death benefits would be distributed. This included spouse/civil partners, any children under the age of 23, or anyone who was financial dependent/interdependent on Mr S at his death.

• Each of the three beneficiaries all wished to be considered as potential beneficiaries, and each had a strong claim to the death benefits. As she was named as the sole nominee under the EOW, SL agreed that Mrs S held the strongest claim to the Scheme benefits, this is how the decision to award her 60% was reached.

• Mr S’ two children, who met the definition of dependent(s), qualified for a share of the Scheme death benefits, so the remainder was split equally between them both. In SL’s view, the outcome reached was reasonable, and that the evidence collected was sufficient for it to make an informed decision.

• It understood that she had said Mr S made sufficient provisions for the two children through his Will, meaning that there was no requirement for any provisions from the Scheme. However, SL was at risk of fettering its decision if it did not consider the two children on this basis.

• If she disagreed with SL’s decision, she should provide clear evidence demonstrating why.

In February 2021, SL made the decision to increase the £200 offered to her in January 2021, to £500. This decision was made after it reviewed the telephone call between Mrs S and SL’s bereavement team in October 2020 and noted an insufficient level of customer service.

SL’s position

The discretion available to SL under the Rules was not determined by the instructions outlined in an EOW. If SL was compelled to implicitly follow an EOW, or if it failed to consider any other potential beneficiaries due to the provision of an EOW, HMRC could take the view that the death benefits formed part of the Estate and could be subject to inheritance tax.

SL still required sight of the EOW, and the Will, as both could give SL an idea of the members circumstances and family set-up. It was not for SL to decide whether an amount of £150,000, provided under the Will, was sufficient enough to exclude an individual/s from receiving a portion of the death benefits.

The children, and the youngest child’s, guardian were informed that they were not named on the EOW, but that they could be considered as potential beneficiaries. 8 CAS-66878-V9C2 Both of the children wished to be considered as they were dependent on Mr S, as confirmed by the Solicitor.

The rationale behind the decision to pay Mrs S 60% of the value of the death benefits, with the remained split equally between the children, was to ensure they did not go against the EOW, without good reason. The maximum that SL would normally pay to an individual/s who proves dependency was 20%. So, 20% was given to each of the children.

Adjudicator’s Opinion

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Mrs S did not accept the Adjudicator’s Opinion, and the complaint was passed to me to consider. Mrs S provided her further comments, which are summarised below:-

• Prior to Mr S’ death, he made specific provisions for each named beneficiary under the Will, taking into account each recipients financial welfare. He did not amend his EOW, even after he was told by SL, on 13 March 2020, who was named on his October 2017 EOW. This demonstrated that his wish was for her to receive the entirety of the Scheme death benefits.

• It was unclear how SL considered Mr S’ and her own personal circumstances, in deciding how to split the death benefits. This was because SL did not contact her, or the Solicitors, for additional information. If SL had, she could have fully explained the financial circumstances of the children and that she was due to give £200,000 to Mr S’ mother, father and sister. It appeared that the extent of SL investigation was obtaining confirmation from the children that they wished to be considered a beneficiaries for the Scheme death benefits.

11 CAS-66878-V9C2 • It was her view that SL did make a moral judgment during its decision making as it believed that she would be sufficiently provided for by Mr S’ Estate. It was unclear why consideration was given to when she met Mr S, and when they got married.

• She did not agree that the percentage split of the death benefit was logical, nor had SL provided a sufficient answer explaining how it arrived at the split that it did. It was unclear why each of the children were each paid 20% of the death benefits when one of them was 21 and the other was 17.

• The poor service that she received from SL was attributable to more than just the telephone call that took place on 26 October 2020. She received poor service throughout her time corresponding with SL. At no point was she treated as a vulnerable individual following Mr S’ death.

Ombudsman’s decision

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I do not uphold Mrs S’ complaint.

Camilla Barry Deputy Pensions Ombudsman

7 May 2025

14 CAS-66878-V9C2 Appendix Extracts of, Schedule 28, the Finance Act 2004, as amended.

“15 (1) A person who was married to (, or a civil partner of,) the member at the date of the member’s death is a dependant of the member.

(1A) If the rules of the pension scheme so provide, a person who was married to ( or a civil partner of) the member when the member first became entitled to a pension under the pension scheme is a dependant of the member.]

(2) A child of the member is a dependant of the member if the child—

(a) has not reached the age of 23, or

(b) has reached that age and, in the opinion of the scheme administrator, was at the date of the member’s death dependant on the member because of physical or mental impairment.

(2A) A child of the member is a dependant of the member if the child—

(a) has reached the age of 23, and

(b) is not within sub-paragraph (2)(b).

(2B) But this paragraph, so far as it has effect for the purpose of determining the meaning of “dependant”—

(a) in paragraphs 16 to 17 and 27A, and

(b) in paragraph 18 of Schedule 29,

has effect with the omission of sub-paragraph (2A).

(3) A person who was not married to (or a civil partner of) the member at the date of the member’s death and is not a child of the member is a dependant of the member if, in the opinion of the scheme administrator, at the date of the member’s death—

(a) the person was financially dependent on the member,

(b) the person’s financial relationship with the member was one of mutual dependence, or

(c) the person was dependant on the member because of physical or mental impairment.”

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