Sixty Second Summary
The Pensions Ombudsman directs LGPS Fund to pay 40% unauthorised payments charge for late payment of death grant
19 May 2016 - Estimated reading time: 60 seconds
The Pensions Ombudsman directs LGPS fund to pay 40% unauthorised payments charge for late payment of death grant.
In a recent case (PO-3753) the Pensions Ombudsman has been critical of the internal administration processes that led to a death grant being paid after the two year cut-off period for authorised payments. The Ombudsman also found that a failure to flag up the significance of the two year period and the consequences of paying the death grant outside of it, were not properly communicated to the deceased member’s family and that failure to do so amounted to maladministration.
The case emphasises that LGPS administering authorities must have in place robust processes for the payment of death grants and have the ability to expedite payments where necessary. They should also make clear to those responsible for the management of the deceased’s affairs that payment outside of the 2 year period will result in an unauthorised payments surcharge being made.
- In order for a death grant to be "authorised" and thus avoid a tax charge, it must be paid within two years of the LGPS administrator being made aware of the death.
- On 25 November 2008 the fund was contacted by the mother of a deferred member to inform it that her son had died intestate.
- The fund responded to explain that it would need grant of letters of administration in order to make payment of the death grant. The fund repeated the request for letters of administration several times subsequently.
- Due in part to the complicated nature of the late member’s estate, delays in obtaining letters of administration meant that they were not delivered to the fund’s offices until 9 November 2010. This was still (just about) within the two year limit.
- The death grant was not paid until after the two year authorised period had passed and the fund informed the deceased’s mother that a 40% unauthorised payment charge would be deducted from the death grant before payment.
The deceased’s mother appealed the decision on the following grounds;
- The administering authority had been provided with the necessary paperwork within the 2 year period.
- She had not been properly informed of the consequences of payment being made late. Had she been aware she could have sought assistance from a third party in order to navigate a complex and emotionally difficult process more quickly.
The Ombudsman’s findings
The Ombudsman found that the complaint should be upheld against the administering authority and to a lesser extent their administrator because:
- the administering authority and the administrator ought to have been aware of the two-year time limit for making the payment of the death grant;
- the administrator should have informed the deceased’s mother of the two-year time limit and the tax consequences if the death grant was not paid within this timescale;
- although the papers were provided at the 11th hour, there were still 13 working days to settle the death grant, and this should have been sufficient time to process the papers and arrange for the payment by cheque.
Lessons for LGPS Funds
This is an interesting and potentially significant finding for LGPS funds. While the two year delay in paying the death grant is unusual, those involved in the administration of the Scheme will recognise that lengthy delays can occur and many funds will have seen cases which hover close to the two year limit.
The fund in this case raised the defence that the deceased member’s mother had been responsible for submitting the letters of administration late and, in fact, they could also point to several reminders which they apparently sent. The Ombudsman, however, gave this argument short shrift describing it as "irrelevant and spurious".
This highlights the need for administrators to have in place appropriate monitoring and escalating processes in place, rather than simply relying on automatic reminders.
LGPS funds should also be sure that all of their letters and communications relating to the payment of death grants contain clear references to the importance of the two year authorised payment period.
Certainly, there is a role here for local pension boards in assisting administering authorities to ensure that they have considered, and if necessary acted upon, the Ombudsman’s findings.
If you would like to discuss this case any further please contact your usual Hymans’ contact.