Failure to pay benefits within deadline leaves local authority pension fund with payment charge

Written on 16 May 2016

In a case which emphasises the need for administering authorities of Local Government Pension Scheme (LGPS) funds (and pension trustees generally) to have clear processes in place for the payment of death benefits and to ensure that the persons they are dealing with, including potential beneficiaries, are aware of the two year authorised payment deadline from the outset, the Pensions Ombudsman has ruled against an LGPS administering authority and its pensions administrator for failing to pay death benefits inside the two year authorised payment window.

The Pensions Ombudsman has delivered his determination in a case where the administering authority of a Local Government Pension Scheme fund made payment of death benefits outside of the two year authorised payment window, Lettman (PO 3753).

In upholding the complaint, the Pensions Ombudsman directed the administering authority, London Borough of Hammersmith and Fulham, to pay to the recipients of the death benefits an amount equal to the 40% unauthorised payment charge together with simple interest. In addition, the administering authority, and its pensions administrator, the LPFA, were directed to pay £250 each for the distress and inconvenience caused.

This decision highlights the need for LGPS administering authorities to have clear processes in place for the payment of death benefits and to ensure that the persons they are dealing with, including potential beneficiaries, are aware of the two year deadline from the outset.

Funds should be in a position to expedite payments where the two year deadline is imminent, if necessary issuing benefits by cheque in the absence of bank account details.

Facts

  • In this case, the Pensions Ombudsman upheld the complaint of the mother of a deferred member of the LGPS who died intestate,and without completing a death benefit nomination form.
  • On 28 November 2008, the member’s mother had informed the administering authority and its pensions administrator that the death of her son had occurred on 21 November 2008. As the member had died intestate,letters of administration were needed by the administering authority before they could process the payment of the death benefits.
  • The letters of administration were not provided to the administering authority until 9 November 2010. This was only shortly before 28 November 2010, which was the date of the two year deadline for payment as an authorised payment under the Finance Act 2004.
  • This deadline was subsequently missed, which resulted in the payment of the death benefits as an unauthorised payment under the Finance Act 2004, so attracting a 40% unauthorised payment charge. This was deducted from the death benefits paid out.
  • The mother of the deceased member complained that she was not informed of the two year deadline and that in any case the letters of administration were provided in sufficient time for payment to be made before the end of the two year deadline.

Decision

The Pensions Ombudsman held that the failure to make the mother aware of the two year deadline amounted to maladministration, but that it was not possible to say if the mother would have provided the letters of administration earlier if she had been informed about the time limit. He held that even if this was not the case, the period of 13 business days between the letters of administration being provided to the administering authority and the date of the two year deadline was sufficient for the administering authority and pensions administrator to process payment of the death benefits. One of the arguments put forward for not processing the payment before the deadline, was that the bank account details to make an electronic payment of the death benefits were not provided. The Pensions Ombudsman stated that the administering authority should have made payment of the benefits by cheque, and criticised them for not doing so.