When death benefit can be a matter of form: Vivien Goldsmith looks at problems arising when an employee does not update an expression of wish

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The Independent Online
WHEN Douglas Wright died last summer aged 34, his family was surprised to discover that he had not updated the form nominating who should receive the lump sum death benefit from his pension scheme for seven years.

The form said the entire sum - pounds 50,000 - should go to a former girlfriend who, by the time Mr Wright died of a tumour in the head, was married to someone else and had a family.

Mr Wright's parents were called in to see the personnel department at Glasgow University, where Douglas worked as an architectural assistant in the buildings department.

It was suggested that they should write to the trustees to explain their son's circumstances. As far as the family knew he had no financial dependents, was single and had no girlfriend at the time of his death.

The trustees of the Non-Academic Staff Pension Scheme decided that one-third of the lump sum, plus a refund of contributions, should be paid to the family and the balance to the woman named on the form. The family's portion was split according to the intestacy laws in Scotland - half to the parents and half split among three surviving brothers.

One of the brothers, Donald Wright, an Edinburgh solicitor, is perturbed about the whole process of depositing an expression of wishes for the trustees of a company pension scheme to use as guidance.

He asks what counselling is offered to employees at the time of signing the form. 'Most people take advice from their lawyers before signing a will,' he says. 'Should employees not be referred to a lawyer at the time of completion of the form?'

He believes employees should be told that they do not have to make a nomination.

Sandy Adamson, secretary to the trustees of the pension scheme concerned, says members are reminded to complete a statement of wishes in a note at the bottom of the annual pension scheme's abridged accounts.

'We have 1,600 active members,' he says. 'It would be a practical impossibility to write to them all individually.

'If there is no expression of wishes it is very difficult for trustees. But it is a responsibility they have taken on board. They don't take it on lightly.'

Under trust law, the trustees have to use their discretion on how to allot the tax-free lump sum, but it is exceptional for them not to follow any expression of wishes. Their decision cannot be challenged unless they ignored facts or behaved unreasonably.

Donald Wright says: 'If the annual statement of benefit referred to the nomination, the family would not have contested it.'

Trustees are wary about breaching the confidentiality of these forms. Some schemes allow members to send in sealed envelopes which will not be opened unless they die.

Mr Wright also complains that the procedure for allowing interested parties to make submissions is not made clear.

Don Hall, chief executive of the Occupational Pensions Advisory Service, says trustees should satisfy themselves that an expression of wishes form is up to date. They should make inquiries about current circumstances.

He says: 'The expression of wishes is for guidance - it is not a will. Trustees are not obliged to give reasons for their decisions.

'They don't minute the reasons, only the decision, otherwise they would lay themselves open to challenge by people they didn't even know existed.

'They have to exercise the judgement of Solomon.'

Ian Farman, a director of William Mercer, the actuary and benefits advisers, which acts for the Glasgow University scheme, says: 'We always try to persuade our clients to keep efficient systems. The difficulty is to make sure people understand why it is so important to make an expression of wishes.

'Some employees are paid two, three or four times their salary if they die during their working life. That is a significant sum. The most difficult cases are where there is no expression of wishes or one that is so obviously out of date that it is useless.'

The trust deeds of some schemes can mean that when there are no dependents the money can end up going to the Crown. Usually in those circumstances, the money will be returned to the pension fund.

The wishes form allows pension scheme members to nominate people who are not obvious dependents, such as godchildren. Charities can now be nominated to receive funds.

The better off can think in tax- planning terms and perhaps skip a generation and nominate children rather than a spouse. The form can name more than one person and suggest the percentage each receives.

The annual benefits statement, annual report of the pension scheme and pay slips can all be used to press the message that an expression of wishes should be made, says Mr Farman.

Employers can gain an enormous amount of goodwill from the late member's colleagues if the matter is handled sensitively.

For instance, many firms pay an independent adviser a fee to give widows or other dependents financial advice about investing the lump sum.

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