High Court case provides trustees with guidance on determining financial dependency and managing conflicts

A recent pensions case[1] has ruled in favour of a claimant trustee seeking High Court approval to pay a death benefit. It’s of interest to pension scheme trustees in general due to:

• the comments around establishing financial interdependency when considering payment of a dependant’s pension; and
• the findings on managing conflicts of interest (in this case, the prospective beneficiary was also a trustee).

The background

The trustees intended to pay a pension to the second defendant in the case having determined that she was financially dependent on a deceased member of the B.S.T. Group Pension Scheme. That member was also the founder of the company that set up the Scheme.

The claim was opposed by the first defendant, a deferred member of the Scheme and a son of the deceased member, Thomas Stanley Benge (Mr Benge).

The issues before the court were whether:

1. the decision of the trustees was one which a reasonable body of trustees could properly have arrived at in the light of the information available to them at the time;
2. the decision was vitiated by any conflict of interest; and
3. the trustees of the scheme have acted and are acting properly in refusing to reconsider their, as yet, unimplemented decision.

A key point in this complex case is that the definition of dependant in the rules was a fairly common one and included someone who ‘in the opinion of the Trustees is (or was at the date of his death) dependent or interdependent on him for all or any of the necessaries of life’. The HMRC definition is similar.

Evidence was therefore sought on the second defendant’s dependency. Key points included:

1. Mr Benge and the second defendant had been in a relationship for around 10 years and had been living together for approximately 18 months.
2. Mr Benge and the second defendant owned their main residence equally as joint tenants and also owned property in Switzerland. Mr Benge contributed 100% of the purchase price for both, and paid for most of the outgoing and refurbishment work
3. Mr Benge paid for the majority of the couples’ day-to-day living expenses and made provision for the second defendant in his last will.

The scheme trustees, in addition to the second defendant, included a professional trustee, Dentons who, given the clear conflict between the second defendant’s position as trustee and her claim to be a dependant of Mr Benge, sought independent advice on whether the second defendant was Mr Benge’s dependant or not. That advice noted, inter alia, that –

“The fact that the properties were jointly owned does not of itself lead me directly to the conclusion that there was interdependence between Mr Benge and Mrs Barrett. However, the fact that Mr Benge provided the entire purchase price of both properties does offer some support to the notion of dependency by Mrs Barrett upon M[r] Benge.

“[It is indicated] that Mr Benge paid for the majority of the living expenses including food, clothing utilities heating and cleaning. It is not suggested that Mrs Barrett had sufficient funds to bear these costs on her own, but the fact that she did not cover those costs herself, suggests that she was to an extent dependant upon Mr Benge for those necessaries of life.”

Dentons decided in principle to pay the death benefit to the second defendant but subsequently retired as trustee of the scheme. This left the second defendant as the sole trustee until PS Governance Services was appointed as a trustee in 2017.

The new trustee carried out its own investigations and was also satisfied that the second defendant was a dependant. The claimant made that decision in or around November 2017.

The decision was challenged by the children of Mr Benge and, ultimately, the High Court was asked to adjudicate.

The decision

The court considered whether the trustee had properly taken into account relevant matters and whether the decision was one which a rational trustee would have come to.

In response to the first defendant’s allegation that the wrong dependency test was applied by the claimant, the court considered the scheme rules, HMRC test and the meaning of terms such as the “necessaries of life”. The court, noting that the claimant had gathered background correspondence, sought legal advice and contacted HMRC, held that it was satisfied that the claimant applied the correct test to the evidence that they were presented with and that that evidence was sufficient to justify a reasonable trustee reaching the view that the second defendant was a dependant.

Consideration was also given to the whether the decision was vitiated by conflicts of interest. The court found that Dentons, and then the claimant, had both identified the second defendant’s conflict and taken reasonable steps to manage that conflict. In effect, the claimant treated the second defendant not as a trustee but as a member of the scheme, freezing her out of the decision.

Finally, the court considered whether the trustees of the scheme acted and are acting properly. It was observed, in connection with the ‘dependency’ issue that –

“The first defendant appears to be suggesting that the second defendant could simply have returned to her old lifestyle on the death of Mr Benge and therefore the claimant’s decision on her dependency was flawed. This ignores that the test of being a dependant is at the date of Mr Benge’s death, it fails to recognise that the second defendant “has moved up in the world” … and that the “necessaries of life” is relative to the person’s class and position in life.”

On the facts, the court was satisfied that the trustee had taken account of only relevant matters and reached a reasonable decision. The court approved the trustee decision.

Comment

This is a useful decision. The context – complex relationships, involving unmarried partners and children from a previous marriage – is not that unusual when it comes to pension death benefit cases. Further, the comments on the meaning of ‘dependency’, the identification and management of ‘conflicts’, and the process that should be followed and evidence sought for trustees to reach a proper decision are all instructive and relevant to any trustee dealing with a difficult death benefit claim.

[1] PUNTER SOUTHALL GOVERNANCE SERVICES LIMITED v NIGEL J BENGE, and KAY MARGARET BARRETT – High Court Judgment Template (bailii.org)