When Mr B dies, his scheme administrator discovers that his wife also died shortly before him. As she was the only named beneficiary, the administrator investigates Mr B’s circumstances to decide who the beneficiaries should be. They discover that Mr B had no other dependants, and decide to pay the benefits to his three daughters. The administrator deems that, following Mrs B’s death, Mr B effectively had no nominated beneficiaries. As there are also no other dependants, the administrator decides that they are able to appoint nominees and can therefore offer drawdown to the daughters.
When Mr C dies, the scheme administrator contacts Mrs C to arrange the payment of the death benefits. She is surprised that she is named as the beneficiary – she tells the administrator that she and Mr C divorced several years beforehand. She thought Mr C had updated his expression of wishes to name their daughter instead. After their investigation the administrator does decide to offer the benefits to Mr C’s daughter. However, because they are bypassing Mr C’s expression of wishes, they cannot make her a nominee.
In the case of Mr D’s death, if the scheme administrator pays benefits to his sons, they will be able to offer them drawdown regardless of the circumstances. This is because the administrator does not need to be able to make the sons nominees: they can be classed as such because they were part of Mr D’s expression of wishes.
The ability for death benefits to remain in a pension for non-dependants is a valuable feature for many investors. As such, this quirk in the rules is an important consideration. In many situations, the simplest solution could be to provide the scheme administrator with a ‘secondary’ expression of wishes, like Mr D above. This lowers the risk of the administrator needing to appoint nominees themselves, by giving them a back-up plan in the event of unforeseeable circumstances. However, it should not be used as a substitute for regularly reviewing nominations.
Child dependants
The definition of ‘dependant’ is rather strict when it comes to children. A spouse or civil partner will continue to be a dependant indefinitely, as long as the marriage or partnership was in place when the member died.
However, a healthy child will only be a dependant until they reach their 23rd birthday. While this should not affect lump sum death benefits, it is problematic for dependants’ drawdown. Income paid after the child turns 23 would be an unauthorised payment, as the recipient is no longer a dependant. In practical terms, a dependant’s drawdown account for a child has an expiry date.
