Payment of death benefits is often a difficult decision for trustees as they typically have a wide discretion to pay benefits as they see fit.
As a result there is often a high probability of complaints from disappointed beneficiaries especially in more complicated cases.
A discretion to pay out death benefits may arise in the context of a defined contribution pension scheme, a defined benefit pension or scheme or a stand-alone life assurance scheme.
The general considerations set out below will apply to all these types of scheme.

When exercising a discretionary power as to the recipient of any lump sum benefit, trustees should follow the following legal principles which have been well-established in a number of Ombudsman cases.
They must direct themselves correctly in law and on a proper interpretation of the Scheme Rules.
The must ask themselves the correct questions and take into account all relevant (and no irrelevant) factors.
While there is significant latitude for trustees in their decision-making they must not reach a perverse decision which no reasonable trustees could have reached.

The Scheme Rules should be carefully examined to identify the appropriate beneficiaries, the benefits to be awarded and the scope of the trustees’ power to pay out the benefits.
Typically, the trustees will have a wide discretion to pay the benefits to the beneficiaries which are set out in the Rules in the proportions which they consider appropriate.
The beneficiaries are usually widely defined to include the deceased’s spouse, children and wider extended family.
There are often further entities included in the definition of beneficiaries such as charities.

Ombudsman cases reveal that there is no single "correct" answer to how to distribute death benefits.
The Ombudsman has stressed that there is often a range of different decisions which can reasonably be made.
If there is an error in the process that has been used to make the decision, that that may become the subject of a successful complaint to the Pensions Ombudsman or the Courts.
Typical errors might be not considering all relevant facts, or not providing sufficient evidence of the reasons behind the trustees' decision-making.
It is, therefore, important to keep a record of the justification behind the decision to allocate (or not allocate) a proportion of the death benefits to each potential beneficiary.

Usually, if a trustee has erred in its decision-making process, the Ombudsman or a Court would not substitute its opinion, but rather order the trustee to reconsider the decision.

The trustees' decision must be based on all relevant factors after having made all reasonable enquiries.
If the trustees believe they do not yet have sufficient information they should continue with their enquiries in order to ensure they have all the relevant facts.
Information that the trustees may wish to obtain includes evidence of marriage or another relationship of the deceased to the beneficiary or evidence of financial dependence on the deceased.
If the member has completed an expression of wishes form then this can be an important factor for trustees to consider but it is not necessarily a conclusive one.
Trustees are entitled to distribute death benefits between the potential beneficiaries in such proportion as they see fit as long as the outcome is not one which no reasonable trustee body could have made.
Trustees should consider all relevant facts, and no irrelevant ones.
Trustees should keep a record of the reasons behind their decision.