This Factsheet looks at the major issues about your marital status that YOU should be thinking about when it comes to retirement provision.
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 marital status 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 and preserved members than those it provides for pensioner members. When making enquiries with your scheme make sure any benefits they quote are relevant to your situation if you are a pensioner member.
What do Scheme Rules say about marital status?
Your marital status is important for a number of reasons, but not least because it will determine what, if anything would be payable in the event of your death.
Pension schemes will refer to or define marital status within Scheme Rules, although the definitions may vary considerably from scheme to scheme.
Some Scheme Rules have very narrow definitions and this could affect the amount of benefits that would be payable in the event of your death - and to whom.
Be aware as well, that pension schemes may have changed or refined relationship definitions to take account of a more liberal social environment.
Civil partnerships must now be recognised by pension schemes and this has implications for break ups of these relationships in the same way as divorce settlements.
What categories of marital status are there?
Your marital status is likely to fall into one of the following categories:
- single, married, separated or legally separated, divorced, widowed, opposite-sex partner, same-sex partner, registered civil partner, separated or legally separated, dissolved or nullified civil partnership.
The term ‘common-law spouse’ seems to be used less often as more specific terms come into use. Co-habiting with someone may not solely be sufficient for that person to qualify for benefits arising from your death.
What if my marital status changes?
Because your pension schemes may provide different benefits on your death depending on your marital status, it is important that you inform the scheme administrators of a change as soon as this is practicably possible.
It is equally as important that you inform your advisers (Financial, Legal or other) so that they may consider what affect this may have on your financial affairs.
There are some pension schemes that only provide a spouse’s or civil partner’s pension to the person that the member was married to at a given date e.g.;
- If you were an active member immediately before drawing your pension benefits, on your death the Scheme Rules might state that the spouse’s pension would be paid to the person you were married to on the date you began to draw your pension benefits.
- If you were a preserved member immediately before drawing your pension benefits, the Scheme Rules might state that on your death, the spouse’s pension would be paid to the person you were married to on the date you became a preserved member of your pension scheme. This is important if your spouse at the date of your death is not the same spouse at the date you became a preserved member.
Two examples are set out below.
In the extreme, a change in circumstances could lead to a dramatic change to the value of the benefits payable on your death, in some cases reducing substantial death benefits to nil.
Retiring whilst an active member:
Linda was an active member of her pension scheme until she retired in 2001 when she started to draw her pension. She was married to Tom at the date she retired.
The Scheme Rules state that in the event of her death, only the spouse Linda was married to at the date she started taking her pension would receive the spouse’s pension. So in this case Tom would receive it if he survives Linda.
Unfortunately, Tom died in 2003.
Linda married Stephen in 2005. If Linda dies, Stephen won’t get the spouse’s pension (other than any statutory pension which may be available).
If the Rules of the pension scheme had said that Linda’s spouse at the date of her death would be entitled to a pension, then Stephen would get the spouse’s pension.
Similar rules can often apply in the event of divorce.
It is up to the Rules of your pension scheme what is payable and to whom, and the scheme Trustees may have discretionary powers.
Note that depending upon what your pension scheme provides, your spouse or civil partner may be entitled to certain minimum pension benefits on your death (such as a result of your scheme having contracted-out of the State Earnings Related Pension Scheme, SERPS, or its replacement, the State Second Pension, S2P).
Retiring whilst a preserved member:
John was an active member of his pension scheme, which provided a spouse’s pension equal to two thirds of his pension. At that time John was married to Mary. He changed employer and became a preserved member of the pension scheme in 1998. The scheme continued to have a provision for preserved members for a spouse’s pension equal to two thirds of his preserved pension.
However, the Scheme Rules at the time he left service specified that for a preserved member the spouse’s pension would only be paid to the spouse John was married to at the date of leaving.
So, even though John has left his former employer, Mary continued to be entitled to a two thirds spouse’s pension in the event of John’s death whilst they remained married.
But in 2001, John and Mary divorced and John met and married Susan in 2003. He retired in 2004 and began to draw his pension.
If John dies before Susan, the pension scheme will only provide Susan with the statutory minimum spouse’s pension – which is significantly less than two thirds of John’s pension. John should investigate any other provision he has for Susan, and consider whether he wants to provide additional cover.
This simple example assumes John’s and Mary’s pensions were considered as part of the divorce settlement but no action was taken to ‘earmark’ or ‘split’ pensions.
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 years younger).
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 68 and is married to Julie, who is 51 (a 17 year age difference). He is in receipt of a pension from his former employer’s pension scheme. The scheme provides a 50% spouse’s pension on the death of a pensioner member 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 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 a pensioner member rather than an active member or preserved 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?
- 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 v2.1 Pensioner DB
Last updated 05/09/2008