In extreme circumstances, a change in circumstances could lead to dramatic changes to the value of the benefits payable on your death (in some cases reducing substantial death benefits to nil).
Can I specify who gets what on my death?
The benefits available on your death will depend upon the Scheme Rules although the Trustees may have discretionary powers in certain circumstances, which they may or may not exercise.
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.
You should contact your pension scheme as soon as there is a change in your marital status. 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 marital status changes.
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.
Keeping your scheme appraised of changes could save considerable heartache or even prevent unnecessary financial difficulty for the person or people you wish to protect.
Why is my partner’s age important?
If you are in a relationship your partner’s age may have a bearing on any benefits payable on your death.
Many pension schemes reduce the pension payable to a younger surviving spouse on the death of a member if the age gap is greater than a specified number of years (e.g. 10).
This is because under these circumstances the pension scheme will potentially have to pay out the spouse’s pension for a much longer period.
What difference does it make if my partner is much younger?
If you have a partner, (whether you are married or not), who would qualify for benefits upon your death, these benefits could be reduced because of the age difference, so you ought to establish if this applies to you.
Paul is 55 and is married to Julie, who is 38 (a 17 year age difference). He is a member of his company’s pension scheme. The scheme provides a 50% spouse’s pension on the death of an active member whether before or during retirement, but this is reduced by 2.5% for each year that a spouse is more than 10 years younger. So Julie will receive a spouse’s pension that will be reduced by 17.5% (7 years x 2.5%).
Paul’s pension, for example, might be £12,000 p.a. when he dies.
Following his death a 50% spouse’s pension would be £6,000 p.a.
Julie’s pension would be reduced by 17.5% (17.5% of £6,000 is £1,050)
So Julie would receive:
£4,950 per year instead of £6,000
I’ve recently got married / entered into a civil partnership. What should I do?
Inform your pension scheme (and your advisers) so they can record this.
Depending upon the Scheme Rules, your spouse or civil partner may be entitled to benefits, so it is important that you establish what is payable on your death and to whom.
Some schemes make provision in their rules to provide benefits to a spouse or dependants but stipulate that a minimum time period must have elapsed to qualify for payment of a particular benefit (such as a spouse’s pension on the death of a scheme member).
The most common example of this is where Scheme Rules might specify that on the death of the pension scheme member, any spouse’s pension payable is subject to the marriage having taken place at least 6 months (for example) prior to the death of the pension scheme member.
Your scheme might require proof of your marriage or civil partnership for their records.
Summary & Key Points
When making enquiries about your pension benefit it is very important that you make it clear that you are an active member rather than a preserved 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:
- Why your marital status is important in terms of your pension benefit.
- If you have a partner, whether he/she will receive benefits from your pension scheme on your death before or during retirement.
- Have you kept your pension schemes informed of any changes to your marital status?
- Have you completed and returned to your pension schemes a Nomination Form (or similar document) in respect of death benefits?
- If your partner is much older or younger than you, have you investigated what effect this would have on any 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 Marital Status v1.9 Active DB