This Factsheet looks at the major issues about your family and dependants that YOU should be thinking about when it comes to retirement planning.
It is designed to make you think about various aspects of your immediate relationships, and how these could have a bearing upon your pension benefits.
Some of the points are more obvious than others, but they are all important, so take a while and think about you, your family and your immediate relationships.
If you are intending to get advice from a Financial Adviser these are the types of issues you should expect to be asked to consider (and often many more).
Why is my family important in terms of my pension benefit?
The majority of defined benefit schemes provide much more than a pension for scheme members. Additional benefits paid on the death of a scheme member are very common and should anything happen to you, then your partner, children and dependants may be entitled to:
These additional benefits are often valuable in their own rights, although they are quite easily overlooked.
Remember that your pension scheme may provide different benefits for its active members than those it provides for preserved members. When making enquiries with your scheme make sure any benefits they quote are relevant to you as a preserved member, noting particularly when you ceased to be an active member.
Do benefits differ on death before or after retirement?
Any pension benefit that your scheme provides to your family on your death can differ considerably depending upon whether death occurs before or after you commence drawing your benefits.
The difference can be substantial and therefore this aspect of your pension benefit should not be taken for granted.
Who would be included as a ‘dependant’?
In terms of who gets what on your death, this depends upon the Scheme Rules and may also involve the Trustees who can have discretionary powers.
Where one pension scheme may rigidly define ‘child or children’, another may refer simply to ‘dependant’. Don’t assume that one description fits all and remember that schemes do differ in terms of what they provide and to whom.
Scheme Rules can changes from time to time reflecting changes in legislation or social situations, so it’s always a good idea to review your benefits regularly. However, any changes may not necessarily apply to your benefits as a preserved member – it depends on what changes are made.
The definition that is important for you is that written in the version of your Scheme Rules that applied on the date you ceased to be an active member of the scheme.
Jimmy moved jobs in 1990, leaving a preserved pension within his former employer’s pension scheme. At that time, the scheme provided a total dependants’ pension equal to 50% of Jimmy’s pension. This is payable to Jimmy’s spouse – but in the event of Jimmy not leaving a spouse on his death, the pension would be split equally between his children.
In 1998, the Scheme Rules were changed so that children’s pension were payable in addition to any spouse’s pension – but this only applied to active members in service from 1998 (those employees still building up future pension benefit).
Having left the scheme with preserved benefits, Jimmy’s children would not benefit from the improvement in the Rules in this case.
Of course, improvements may have been made since you became a preserved member, which do apply to you. It’s simply a matter of you identifying what benefits are payable for your individual circumstances.
Is there any other definition of dependant?
Yes, from 6th April 2006 new pension were rules introduced by HM Revenue and Customs (HMRC), which set out the definition for the term dependant as:
A person who was married to, or a civil partner of, the member at the date of the member’s death is a dependant of the member.
A child of the member is a dependant of the member if the child
- has not reached the age of 23, or
- has reached the age of 23, and in the opinion of the scheme administrator, was at the date of the member’s death dependent on the member because of physical or mental impairment.
A person who was not married to the member or was not in a civil partnership with the member at the date of the member’s death and is not a child of the member is a dependant of the member if, in the opinion of the scheme administrator, at the date of the member’s death the person was financially dependant on the member, the person’s financial relationship with the member was one of mutual dependence, or the person was dependant on the member because of physical or mental impairment.
HMRC – Registered Pension Scheme Manual Glossary – Crown Copyright
So it’s not only children who are dependant?
No. A dependant could include a child, a parent, a sibling or indeed any other person if it meets the definition of HMRC. Remember that your own pension scheme may have its own definition in the Scheme Rules that may be narrower than that of HMRC. Keep in mind too that the Trustees of your scheme may have powers of discretion.
Does a child or dependant have to be related to me?
Not necessarily. The Scheme Rules or Trustees may determine that non-related children or dependants could be granted benefits in the event of your death. So, for example, your partner’s children from a previous marriage may be eligible if they meet any requirement laid down by the Scheme Rules.
To check how your own circumstances might be treated, you should contact the Trustees or administrators of your pension scheme.
What do Scheme Rules say about ‘dependency’?
In the strictest sense, a dependant is someone who needs your support whether this is financial or non-financial support but when it comes to pension schemes, HMRC’s definition of dependant overrides all others.
Pension schemes may refer to or define dependency within Scheme Rules, although the definitions may vary considerably from scheme to scheme.
Some Scheme Rules have very narrow definitions and this could affect what benefits would be payable in the event of your death - and to whom.
Be aware as well, that pension schemes may have changed or refined Scheme Rules so don’t rely on old scheme booklets which may have since been updated.
What’s the difference between financial and non-financial support?
This is important because a pension scheme’s Rules may be very precise in who is deemed a dependant.
Scheme Rules may require, for example, that a child or dependant must be financially dependent upon you at the time of your death in order to qualify for benefits from the scheme.
Other schemes may simply require the child or dependant was in your care or required your ‘support’ immediately prior to your death – and this may not necessitate that you were directly or indirectly financial supportive at that time.
Is the age of my children a factor to consider?
Where a pension scheme provides for children’s benefits it may place specific age limits as to how long benefits may be provided for, such as age 18 or age 21 for example.
Remember that since 6th April 2006, HMRC defines a child as a dependant if under the age of 23 (with exceptions for physical or mental impairment - see above).
Prior to 6th April 2006, some pension schemes provided children’s benefits which continued while the ‘child’ was in full-time education or vocational training which could have taken them beyond the age of 23. The HMRC definition now means this can no longer apply above age 23.
Are children’s or dependants’ benefits split equally?
There is no legal requirement stating that benefits payable on your death have to be split equally.
A pension scheme may decide in what proportion benefits are distributed to dependants. This will depend upon the Scheme Rules, which may also limit the number of dependants who may receive benefit.
Dependant’s pensions are payable on the death of a member which in total equals one half of the member’s pension payable to children under the age of 18, subject to a maximum of four children, divided equally, and doubled if no spouse’s pension is payable.
Dependant’s pensions are payable on the death of a member; 20% of the spouse’s pension for the first child; 10% each for the next 3 children; payable to children under the age of 21.
Can I specify who gets what on my death?
What benefits are available on your death will depend upon the Scheme Rules although the Trustees may have discretionary powers in certain circumstances.
Some schemes allow you to complete a Nomination Form or Expression of Wish Form (or some similarly entitled document), so you can inform the Trustees of your wishes regarding your beneficiaries. You should remember however, that Trustees are not necessarily obliged to take this into account in making their decision.
If you have not completed a Nomination Form, get in touch with your pension scheme, as this type of document helps the Trustees to know what your wishes are.
Consider contacting your pension scheme as soon as there is a change in respect of your dependants – such as the birth of your child. If you have previously completed a Nomination Form (or similar document) which details what you would like to happen in the event of your death, this may need to be revisited if your circumstances changes.
Summary & Key Points
When making enquiries about your preserved benefit it is very important that you make it clear that you are a preserved member rather than an active member or pensioner member. Active, preserved and pensioner are different classes of membership of a pension scheme and any definitions and paragraphs contained within your Scheme Rules or scheme literature relating to any benefit may differ considerably between these categories.
On average, people change jobs every 5 to 6 years. It is possible therefore, that you will have more than one pension benefit. For each pension benefit, you need to consider the following items:
- Consider your personal circumstances. Do you have dependants? Are dependants’ benefits important to you?
- Does your pension scheme provide dependants’ benefits on your death?
- Do your dependants meet the criteria that your pension scheme sets to qualify for benefits?
- If your pension scheme provides dependants’ benefits, do these differ if your death occurs before or after you commence drawing your pension?
- Have your circumstances changed at all in terms of your dependants?
- Have you completed and returned to your pension scheme a Nomination Form in respect of death benefits?
- Keep informed. Your scheme may modify benefits and Rules. Legislation may change. Your circumstances may alter.
- Rules differ from scheme to scheme and are wide and varied in content. Don’t assume that what applies to one of your pension schemes will necessarily apply to others that you may have.
- HMRC impose rules, which registered pension schemes must conform to.
People seldom have identical pensions and you should avoid drawing comparisons with colleagues whose circumstances may at first appear the same but could emerge as having significant differences.
This is not an authoritative document. Seek professional advice from an appropriately experienced and qualified adviser.
My Dependants v2.0 Preserved DB
Last updated 17/09/2008