The Pensions Ombudsman has found that a pension provider committed maladministration in requiring a deceased member's widow to establish a separate SIPP and transfer the deceased member's pension fund into that before she could take flexi-access drawdown (Mrs Y CAS-38697-T1F1).  

Background facts

The main asset of the deceased member's SIPP was a commercial property. The deceased member's widow (Mrs Y) was the sole beneficiary for death benefit purposes.  Shortly after the member's death, Mrs Y corresponded with the SIPP provider's property team about a new tenant for the commercial property and the new tenant started to lease the property.  In the course of that correspondence, Mrs Y provided her late husband's death certificate and expression of wish form to the SIPP provider.  Mrs Y understood that she had thus effectively dealt with any action required in relation to the SIPP as a result of her husband's death.  When the SIPP provider wrote to her approximately 3 months later requesting Mr Y's death certificate and will and setting out death benefit options, she therefore ignored the letter.  The SIPP provider did not chase for a response for almost 15 months.  By this time there were just a few weeks left to deal with the death benefits within the two year limit for avoiding tax charges.

Mrs Y wished the commercial property to be retained within a SIPP in her name.  The pension provider insisted that in order to do this, Mrs Y had to establish a new SIPP into which the property could then be transferred "in specie".  This subsequently happened.  However, as the tenant's rent deposit had not transferred with the property's title, the pension provider sought legal advice as to whether a formal assignment was required.  This resulted in a solicitor's fee of £700 being incurred which the pension provider charged to Mrs Y.

Mrs Y complained that, had the death benefit process been explained to her at the outset, she would have opened a new SIPP sooner, meaning that the tenant's rent deposit would have been paid directly into her SIPP and the legal fees relating to a possible assignment would have been avoided.  She also believed that the solicitor and valuation costs of over £3000 which she had incurred in connection with the transfer of the property could have been lower if the work had been carried out at the same time as the lease was agreed with the new tenant.

Ombudsman's decision

The Ombudsman found that that there was no legal reason why Mrs Y could not have been paid from the deceased member's SIPP.  The SIPP T&C's provided that a beneficiary could ask to receive flexi-access drawdown and that such payments would be made directly to the beneficiary's bank account.  There was no mention of the beneficiary having to establish a new SIPP in order for this to happen.  Nor did the death benefits section of the Benefits Guide for members make any mention of a dependant needing to transfer the assets of a deceased member's SIPP to a new SIPP.  The Ombudsman ordered the pension provider to determine whether Mrs Y incurred any additional costs due to being required to open a new SIPP and transfer the property to it compared with the position if she had been allowed to draw benefits directly from the existing SIPP.  If any additional costs had been incurred, the pension provider was to pay that amount to Mrs Y's SIPP.  The Ombudsman also awarded Mrs Y £500 for distress and inconvenience.

Our thoughts

We do not think this determination means that a pension provider can never require a beneficiary to establish a new SIPP in order to receive drawdown benefits following the death of a member.  However, if a pension provider does intend to operate in this way, it should make sure that its T&Cs and the scheme rules clearly allow it to do so, and that any member guides spell this out.  We recommend that any pension providers who require the establishment of a new SIPP for the payment of ongoing death benefits should make sure they are clear as to what their documentation says on this issue.

Another key learning point from this case is the importance of having a streamlined process for dealing with death benefits that includes a clear explanation for the member's next of kin, including any steps required on their part.  Where a scheme allows investments in property, the process and explanation need to cover this.