A widow in the UK has challenged financial services firm Northern Trust over its decision to recover £165,000 in employer contributions from her late husband’s workplace pension.
Mrs Meier’s husband, Mr Underhill, had been an employee of Northern Trust for 11 years and was still employed when he passed away. At the time of his death, Underhill had a death-in-service benefit under which one or more of the beneficiaries of an employee who dies during the course of employment can receive a lump sum. This lump sum is often two to four times the salary, but the amount varies between employers.
Northern Trust’s death-in-service benefit provided for a lump sum of nine times the employee’s salary, leading to a payout of just over £1 million to Meier. However, the arrangement also enabled Northern Trust to claw back 75% of Underhill’s defined contribution pension savings, which could be used by the employer to meet expenses and/or other employer contributions. Employee pension contributions of around £44,000 were refunded to Meier, while around £165,000 of the remaining fund was returned to the employer.
Meier argued that it was “wholly unethical” that the employer contributions to her husband’s pension, which were provided to him as part of his compensation package, could be used for expenses rather than given to his estate. She also argued that the clawback was out of line with the aim of a pension, which is typically intended to provide financial security for the future.
At this stage, the challenge appears to have just been lodged with Northern Trust, so the details of the complaint are not public record. It is, therefore, not clear what the grounds are for challenge and whether it will be successful. We understand the rules permitted the clawback, but it is not clear whether Northern Trust had made it clear to members that their defined contribution pension savings could be reduced where the death-in-service benefit is paid out, or how such mechanism complies with Northern Trust’s auto-enrolment obligations.
In any event, this case serves as a useful reminder to employers that they must ensure they are transparent with their employees and that they take care to consider and explain the interactions between the rules of the various benefits that they provide.
