The Pensions Ombudsman (TPO) has upheld a complaint regarding a fraudulent claim, after finding that Legal & General (L&G) had failed to properly identify and consider all potential beneficiaries for a lump-sum death benefit for a scheme that has since transferred to ReAssure.

Ms N, the complainant, stated that following her father, Mr K’s, death in 2018, L&G awarded the full lump-sum death benefit of £61,514.26 to her brother, Mr C, without requiring him to obtain letters of administration, thereby failing to verify all potential beneficiaries and allowing a fraudulent claim to be made.

Mr K had four children: Ms N, Mr C, Ms S, and Mr O (adopted). Ms N and Mr C share the same biological mother, and Mr K divorced their mother in 1989.

In 1992, Mr K joined the pension scheme, transferring his Armed Forces Pension rights. He chose to have any death benefits paid as a lump sum and nominated his then-wife as the beneficiary, noting he must update L&G if circumstances changed.

When Mr K died in July 2018, he did so without a will. He left behind savings in two banks.

After his death, Mr C informed the banks and provided the death certificate, and the funds were released without probate as the amounts were below the legal threshold.

In April 2019, L&G acquired a copy of Mr K’s death certificate from the General Register Office and contacted Mr C, asking him to complete a claim questionnaire so they could decide how to distribute the policy’s death benefits.

Mr C provided false information to L&G, claiming he was the sole beneficiary. Based on this, L&G paid him the full lump sum without verifying other potential beneficiaries.

In September 2020, the policy was transferred to ReAssure, meaning that ReAssure took over liability for the policy, and all the information L&G held on the policy was transferred.

In early 2021, Ms N informed ReAssure that a fraudulent claim had been made on the policy by Mr C.

ReAssure confirmed that the value of the policy was paid out by L&G as a discretionary payment and that it fell outside of Mr K’s estate. ReAssure suggested that Ms N take legal advice on how to proceed.

Ms N then set out that Mr C had told her and her siblings that after paying funeral expenses, there were no residual funds left in the estate, and was informed by Mr Cs ex-girlfriend that he had made a fraudulent claim on the policy. Ms N then reported him to the police.

He later pleaded guilty to fraud by false representation and was sentenced in November 2023.

She stated that, since her father left no will, letters of administration would have been appropriate. Given the substantial amount involved, she expected these to be a prerequisite.

“Had my brother been required to provide [letters] of administration. I feel L&G could be satisfied that a suitable level of checks had been made,” she said.

ReAssure explained that L&G followed its standard process at the time and processed the claim in good faith. It said that based on the evidence available, L&G had made the right decision.

Ms N said that Mr C has not been instructed to repay the funds, and the other children had suffered a financial loss and L&G and ReAssure should put matters right, pay them each an equivalent amount in redress, with interest, and reclaim the money from Mr C.

She also claimed that ReAssure should have taken legal action against Mr C instead of telling her to seek legal advice and that L&G should have carried out further investigations.

ReAssure said that L&G did not receive an updated nomination form from Mr K in respect of the policy, and as Mr C was found guilty of fraud by false representation, the siblings should reclaim the money through legal means and that it was “unreasonable” in the circumstances to expect ReAssure to make further payment.

TPO said that under the plan rules, L&G had full discretion to decide how to divide Mr K’s lump sum death benefits among qualifying beneficiaries.

However, before exercising this discretion, L&G needed to identify who the potential beneficiaries were. This is a factual question, not a matter of discretion, and requires gathering enough information to make a fair and rational decision.

While trustees do not need to find every possible beneficiary, they cannot properly exercise discretion if they fail to consider the main range of potential beneficiaries.

Legal cases show that trustees should make reasonable enquiries, but they are not expected to achieve perfection.

In this case, L&G relied on false information provided by Mr C, who claimed to be the sole beneficiary. As a result, L&G failed to identify and consider other potential beneficiaries, meaning its decision was not properly informed.

TPO said that even if the death benefit was relatively small, L&G had a duty to verify the information and exercise its discretion correctly.

It also stated that because L&G did not properly consider the other beneficiaries, the decision to award the full lump sum to Mr C was invalid and determined that the matter must be sent back to ReAssure to reconsider the distribution of the death benefits.

TPO directed ReAssure to investigate all potential beneficiaries and their circumstances before reconsidering the distribution of the funds.

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