Death Benefits: No Duty On Employer To Tell Member About Less Generous Death Benefits

The Pensions Ombudsman (PO) has given a determination in a complaint by a Mr N that the respondents were not under a duty to inform his wife, Mrs N, that opting to stop contributions to the Scottish Teachers' Superannuation Scheme (the "Scheme") after 40 years' pensionable service would lead to reduced lump sum death benefits.

Facts

Under the regulations governing the Scheme, the lump sum death benefit payable to a deferred member such as Mrs N was only 3/80ths of pensionable salary multiplied by the reckonable service completed. In contrast, on the death of an active member of the Scheme, his or her beneficiaries would be entitled to receive three times the deceased's pensionable salary.

In November 2012, Mrs N opted to end her contributions to the Scheme as she had completed 40 years' pensionable service, which she believed was the maximum permitted under the Scheme. Mrs N remained an employee of Dundee City Council (the Council) until her death on 17 October 2013. The Scheme administrator calculated the death benefit on the deferred basis (with the period from when she opted out until 17 October 2013 not being counted as service). The lump sum death benefit payable from the Scheme amounted to £67,453. Had she kept up her contributions as an active member of the Scheme, the lump sum would have been £132,063, some £64,610 higher.

Complaint from Mr N

Mr N complained unsuccessfully under the Scheme's IDRP. He therefore decided to bring his complaint to the PO stating that his late wife, who was already ill when she stopped her contributions in 2012, would not have become a deferred member if her employer (the Council) or the Scheme administrator had told her this would greatly reduce her death benefits.

He claimed that:

the opt-out form had led her to believe the death benefit would remain unchanged; another employee had told him that after her death under its normal practice, the Council should have contacted Mr N to explain the implications of opting out; and the employer had breached its duty to take reasonable steps to inform an employee of a contractual term in order for them to take advantage of it. This duty flowed from the House of Lords decision in Scally v Southern Health Board1 and later applied in the PO case of Bennett2. PO's Determination

The PO dismissed Mr N's complaint. He found that the administrator had a duty to administer the Scheme in accordance with the underlying regulations and had done so in paying Mr N the correct...