Part 5 – COVID – 19 and death benefits – A case study

01 / 07 / 2020

Many cases will be straightforward – lump sum benefits are usually paid to spouses or children of the deceased in accordance with up to date expression of wish forms. In more complex cases, the trustees of managers will need to make more extensive enquiries especially if family relationships have broken down. Such cases are ripe for conflict and therefore, the trustees/managers must follow due process in an attempt to verify the facts and corroborate evidence of a matter by liaising with:

  • the deceased’s members family and friends so as to ascertain as much background as possible from conflicting sides;
  • the personal representatives/executors of the deceased’s estate; and
  • the deceased’s work colleagues and manager.

Where financial dependence or inter-dependence needs to be established trustees/managers also have the right to ask potential beneficiaries for documentary evidence to support any reliance a beneficiary may have for the “ordinary necessities of life”. This includes requesting bank/building society statements and receipts. Asking the potential beneficiary to execute a sworn statement in the presence of an independent witness has also been used to assist with the efficacy of a particular outcome.

Whatever the outcome it is vital for trustees/managers to document their decision-making process which includes keeping full minutes of meetings and retaining copies of all supporting evidence to a beneficiary’s claim.

Case Study

Mrs G had been a member of her first employer’s final salary pension scheme from 1964 until 1978. Since leaving the employment of her first employer, she had taken financial advice and consolidated all of her pension savings into various money purchase arrangements. Most recently, in 2010,  she transferred everything into a self-invested personal pension (SIPP).

In 2013, Mrs G’s first husband passed away. He was survived by his wife and the couple’s three grown-up children

In 2016, Mrs G remarried at the age of 72 and retired from work the following year. Tragically, Mrs G died in April 2020, aged 76 from Covid 19 having contracted coronavirus whilst on a ski holiday with her second husband, also aged 76 .

Mrs G’s death was sudden and unexpected. She had otherwise been in good health for the majority of her life and was only beginning to reap the rewards of her retirement.

Mrs G’s total pension savings amounted to £1,150,000 which was fully crystallised when she died.  As she was over age 75 at the date of death, any death benefits payable under the SIPP would be taxable in the hands of the recipient.

When Mrs G’s second husband contacted the SIPP provider to enquire as to the death benefits payable under the plan, it transpired that the expression of wish form held on file was from 2010 when the SIPP was originally set-up. As such, it named Mrs G’s first husband as her sole beneficiary. The SIPP manager therefore declined to distribute any lump sum death benefit to the second husband, instead opting to pay the remaining fund to her estate.

The second husband was however able to evidence his financial dependence on his late wife by establishing that he had relied upon her for the ordinary necessities of life. The manager eventually relented and exercised its discretion to distribute 33% of the SIPP to the second husband.

It has since transpired that Mrs G was in the process of updating her will but had not finalised matters prior to her death. Her original will makes no provision for her new husband. Hostility between the second husband and Mrs G’s grown up children from her first marriage has also made a tragic situation even more difficult.

It is important for trustees/managers to remind members to update expression of wishes each year or at a minimum, as and when major lifestyle events take place.

The second husband is bringing a separate claim under the Inheritance (Provision for Family and Dependants) Act 1975 – an expensive process which will be both time and emotionally intensive for all concerned.