Payment of discretionary death benefits from pension schemes – a question of dependency

The Mills & Reeve pensions team has recently advised Punter Southall Governance Services (acting as independent trustee of a pension scheme) on an important case concerning the payment of discretionary death benefits from the scheme.

In the case of Punter Southall Governance Services Ltd v Benge the trustee sought the Court’s blessing to exercise its discretion to pay a death benefit to a dependant of a deceased member. The application was opposed by the deceased member’s son on the grounds that the proposed dependant recipient was not dependent on the member for the “necessaries of life” as required under the scheme’s trust deed and rules. The case focussed on the interrelationship of the scheme’s rules versus provisions relating to the payment of death benefits under the Finance Act 2004.

In granting the trustee’s application the court considered the term “necessaries” to be fact sensitive in relation to “class and position in life.” The scheme’s rules described a dependant as a person “who in the opinion of the Trustees is (or was at the date of his death) dependent or interdependent on [the member] for all or any of the necessaries of life”.

In the Finance Act 2004, a person is defined as a dependant of a member “if, in the opinion of the scheme administrator, at the date of the member’s death -

(a) the person was financially dependant on the member;

(b) the person’s financial relationship with the member was one of mutual dependence; or

(c) the person was dependant on the member because of physical or mental impairment.”

The son argued that the trustee had incorrectly applied the legislative test rather than the scheme’s rules. The court held that being dependent on someone for the necessaries of life was materially the same as the definition of dependant under the Finance Act 2004.

In the absence of many cases that concern the definition of “necessaries of life,” this case provides welcome clarification for trustees faced with analysing who qualifies as a dependant.