Introduction
In most situations, your pension is being paid through a contract with an insurance company. The benefit itself will normally have been chosen by you before that pension started. You will not be able to change that contract in any circumstances.
If you are in receipt of a drawdown type pension where you are not currently taking all of your pension (i.e. your pension has not been fully secured with an insurance company) you may be able to change that part of your pension which has not yet been insured. These arrangements (usually referred to as ‘income drawdown’) are operated by insurance companies and a few company pension schemes.
This Factsheet deals with the more common situation of an insured pension.
This Factsheet 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?
Employer sponsored money purchase pension schemes usually provide more than a pension for scheme members. Benefits can be paid on the death of a scheme member and should anything happen to you, then your partner, children and dependants may be entitled to an income and in certain circumstances, a lump sum (usually because a minimum guaranteed payment period had been build in when a member’s pension had commenced, e.g. 5 years).
Benefits payable to your dependants on your death can be expensive and should not be overlooked in your pension planning.
In a money purchase pension, if you die after you start to receive your pension the dependants’ benefits will be determined by the decisions you made when you retired.
When making enquiries with your scheme make sure any benefits they quote are relevant to you as 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. If your marital status changed after you retired, new dependants may not have any protection when you die.
Civil partnerships must now be recognised and this has implications for break ups of these relationships in the same way as divorce settlements.
What categories of marital status are there?
You will be either single, married, separated or legally separated, divorced, widowed, an opposite-sex partner, same-sex partner, registered civil partner, or be separated or legally separated, dissolved or nullified civil partnership.
The term ‘common-law spouse’ has no legal status. 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?
You will have already made an unchangeable decision as to who should benefit from a pension on your death at the time you started to draw your pension. It is important that you inform your advisers (Financial, Legal or other) so that they may consider what affect this may have on your financial affairs.
You can only protect the financial relationships where your status changes after you own pension commences by making separate arrangements and you should seek independent financial advice to achieve this.
If part of your benefit relates to contributions which were made as part of contracting out of the State Earnings Related Pension Scheme (SERPS), or its replacement, the State Second Pension (S2P), your spouse or civil partner may be entitled to pension benefits on your death, related to that part of your pension.
Can I specify who gets what on my death?
Apart from any contracted out benefits, you had complete control to select any eligible partner and the amount of benefit they will receive on your death. If that person dies before you no benefit would be payable. You should advise the insurance company if this happens.
If you have contracted out benefits and you remarry or enter into a new civil partnership you should contact your insurance company (or scheme administrator) as soon as possible.
Warning:
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 have contracted out benefits and have entered a new relationship since you started your pension, your partner’s age could have a bearing on those benefits payable on your death.
This is because where there is a survivor’s pension payable on your death; your spouse’s age will determine the amount of benefit payable. The older they are, the more they will receive and the younger they are, the less they will receive.
I’ve recently got married / entered into a civil partnership. What should I do?
Inform your pension advisers so they can record this and review your financial planning so that you can make adequate provision for your new partner’s benefits.
You may not be able to use any of your current schemes to make the extra payments but a wide range of solutions can be offered by a financial adviser.
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.
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 the death benefits?
- Keep informed. Your scheme may modify benefits and Rules. Legislation may change. Your circumstances may alter.
- Money purchase schemes have many forms and can be quite different from one another. Don’t assume that what applies to your money purchase schemes will necessarily apply to other pension arrangements 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 v2.0 Pensioner DC
Last updated 10/07/2007
