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Home / News and Insights / Blogs / Pensions / 76: PSGS v Benge – High Court asked to ‘bless’ trustee’s decision in relation to death benefits

Background

The High Court was asked by the trustee of a pension scheme to approve its decision to pay death benefits to a scheme member, who was also a trustee, following the principles in the case of Public Trustee v Cooper. Essentially, the court will approve the proposed course of action if the decision is one which a reasonable body of trustees could properly have arrived at and if there is no conflict of interest.

The deceased member (Mr B) died in 2010 following a prolonged period of mental decline. Under the Scheme’s trust deed and rules, a death benefit was payable to a member’s ‘dependant’, which is defined as ‘such other person 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 second defendant (K), who was both a member of the scheme and a trustee, provided evidence that she was Mr B’s partner, had moved into his home prior to his death and dependent on him for her daily living expenses as well as the costs of running the home.

The trustees concluded that K was a ‘dependant’ for the purposes of the Scheme’s rules and decided to pay the death benefit to her. In doing so, they excluded K from decision making to manage the conflict of interest and took legal advice. The first defendant (N) is Mr B’s son. N claimed the trustee had failed to take into account relevant considerations in reaching its decision, including Mr B’s mental health in the years leading up to his death, and made a number of serious allegations against K and her dealings with Mr B’s financial affairs, although he did not produce evidence of it at the time.

The High Court’s decision

The court noted that, in deciding whether the trustee’s decision was one which a reasonable body of trustees could have reached, it should consider

(i) whether the trustee had taken into account relevant factors and no irrelevant factors; and

(ii) whether the decision was one which a rational trustee would have come to. The court stated that if it was satisfied in respect of both elements, then the court could not interfere with the trustee’s decision, even if it would have come to a different decision.

Was the trustee’s decision reasonable?

The court held that the trustee’s decision was one which a reasonable body of trustees could properly have arrived at, based on the information available to it at the time. N had alleged that the trustee had incorrectly applied the dependency test under the Finance Act 2004, rather than the test under the Scheme rules. However, the court held that the two definitions were materially the same, even though the Finance Act 2004 definition doesn’t expressly refer to the ‘necessaries of life’.

N also alleged that there was insufficient evidence to support the trustee’s conclusion that K was dependent on Mr B. However, the court held that the trustee had gathered sufficient evidence and its role was not to determine whether the evidence gathering process itself is adequate. The trustee had sought, professional legal advice on whether K was a dependant and the courts had no reason to doubt that advice.

The court also noted that the ‘necessaries of life’ take account of ‘the relevant status of the person concerned’ and are ‘relative to the person’s class and position in life’. The court noted that Mr B was ‘very wealthy’ and evidence in her witness statement that she could not afford to maintain her lifestyle without the support of Mr B was sufficient evidence of dependency. The trustees received legal advice which focused on the factual circumstances of dependence, the circumstances in which it arose is not material.

Was the trustee’s decision vitiated by a conflict of interest?

The court held that the trustee had taken reasonable steps to manage the conflict between K’s role as trustee, member and potential beneficiary by excluding her from the decision-making process and seeking expert legal advice.

Conclusion

This case is helpful for trustees (and indeed those bring claims against trustees) considering the payment of death benefits under scheme rules, particularly in illustrating the expectations of the court in gathering sufficient evidence (or providing it as a claimant) and process and the circumstances in which the court may or may not approve a trustee decision. It also provides helpful comment on the phrase ‘necessaries of life’ which is commonly found in the death benefit provisions in scheme rules.

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