Redundancy - Children's Death Benefits - Preserved Members - Defined Benefit Schemes

This is crucial, as any change is likely to have taken place at the date you ceased to be an active member and you may not have realised this. To understand the effect of any change you need to know what may have been available whilst you were an active member. Only then will you realise what effect any change could have had to your children’s/dependants’ pensions (if at all):

Examples of children’s (or dependants’) pensions on the death of an active member:

Children’s pensions may have been payable at a rate of one quarter of your spouse’s pension for up to four children – payable up to age 16, or 21 if in full time education.
Children’s pensions may have been payable at the following rates (expressed as a percentage of your pension); 1 child – 20%, 2 children – 30%, 3 children – 40% and 4 or more children – 50% divided equally. The pensions may have been paid until the children were aged 18 and doubled if there were no spouse.
Children’s pensions may have been paid at the trustees’ discretion.

When you became a preserved member, it is possible that the amount of children’s/dependants’ pension payable may have changed – and sometimes that change can be dramatic. It is essential that you investigate whether children’s/dependants’ pensions are available and whether and how they changed when you become a preserved member.

Examples of the changes that can have happened to children’s/dependants’ pensions having changed from an active member to a preserved member:

A reduction in the percentage of the children’s/dependants’ pension (e.g. from a percentage of your pension to a percentage of your spouse’s pension – a subtle but important change).
Children’s pensions only become payable to children that were born whilst you were an active member of the pension scheme. So any children born since you were made redundant may not be covered.
No children’s/dependants’ pensions payable now you are a preserved member (an extreme example, if your scheme paid them to active members, but it is possible).

Sample Case History

Paul before and after redundancy.

He is a member of his defined benefit scheme.

He has 30 years pensionable service, 1/60^th scheme basis.

His pensionable salary is £34,000 p.a.

His pension would currently be: 30 x £34,000 = £17,000 p.a.

and his spouse’s pension would be 50% of that upon his death, i.e. £8,750.

In the scheme rules, it describes children’s pension payable on the death of an active member as being 50% of the member’s pension, divided equally, at the date of death.

However, for a preserved member there is a subtle change in that the scheme rules say the children’s pension is 50% of the spouse’s pension, divided equally, at the date of death.

So, the children’s pension (divided equally between his children) on Paul’s immediate death would be:

As an active member -

50% of his pension: 50% of £17,000 = £8,500 p.a.

As a preserved member –

50% of his spouse’s pension: 50% of £8,750 = £4,250 p.a.

His children’s pensions were reduced by half once Paul was made redundant and became a preserved member.

Summary

This shows the type of change in the children’s/dependants’ benefits when changing scheme category from an active member to a preserved member.

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 Quicknote forms part of our Module about Redundancy and should be read alongside the other Factsheets and Quicknotes in the series.

This is not an authoritative document. Seek professional advice from an appropriately experienced and qualified adviser.

*We include civil partner wherever we mention spouse on this page

Redundancy: Children’s death benefits v1.3 Preserved

Last reviewed 10/08/2009

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