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MyCompanyPension.co.uk - Helping members of occupational pension schemes to better understand their benefits.
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:: Scheme Member | Redundancy | Redundancy - Spouse's death benefits | Preserved members of a DB scheme
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Redundancy: Spouse's death benefits* – Preserved Members
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Possible changes caused by redundancy
This Quicknote is written for preserved members in a defined benefit scheme.
As an active member of your pension scheme, you may have enjoyed the added benefit of a spouse’s pension payable in the event of your death. Indeed, there are legal requirements which, when they apply, a scheme must provide for a spouse’s pension (e.g. if your scheme was contracted-out of the State Second Pension, or its predecessor SERPS).
However, having been made redundant, you have changed from being an active member to a preserved member. In this respect, it is essential that you understand that your Scheme Rules may have a different definition in terms of the amount of and to whom any spouse’s pension would be payable on your death.
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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 spouse’s death benefits (if at all):
Examples of spouse’s pensions on the death of an active member:
- A percentage of your pension paid to your spouse (e.g. 50%, 60%, 66.67%).
- A statutory minimum pension (the minimum required by law if it applies to your scheme).
- The ‘value’ of your pension converted to a spouse’s pension (after any lump sum has been taken, and allowing for any other potential dependants’ pensions).
When you became a preserved member, it is possible that the amount of spouse’s pension payable may have changed – and sometimes that change can be dramatic. It is essential that you investigate whether a spouse’s pension is still available and whether and how it changed when you become a preserved member.
Examples of the changes that may have happened to the spouse’s pensions when you changed from being an active member to a preserved member:
- A reduction in the percentage of the amount of your pension which would be paid to your spouse (e.g. the spouse’s pension reduced from 66.67% to 50%).
- The spouse’s pension will only be paid to the spouse you were married to when you stopped being an active member (except for any legal requirements which must be met). If you divorce and re-marry in the future this could affect your new spouse. Similarly, if you were single when you left and subsequently marry since leaving, this will have an effect.
- No spouse’s pension paid at all (an extreme example but it is possible if the scheme was contracted-in where there is no legal requirement to provide a spouse’s pension for preserved members).
Bill Smith before and after being made redundant.
He is a member of his defined benefit scheme.
He has 30 years pensionable service, 1/60th scheme basis.
His pensionable salary is £34,000 p.a.
His pension would currently be: 30 x £34,000 = £17,000 p.a.
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In the scheme rules, it says that for a preserved member the spouse’s pension payable on the death of a scheme member is the ‘statutory minimum’ . For an active member the scheme rules state that the spouse’s pension is 2/3rds of the member’s pension at the date of death.
So, the spouse’s pension on Bill’s immediate death would be:
As an active member - two thirds (66.67%) = £11,333 p.a.
As a preserved member – statutory minimum = £6,900 p.a.
Bill's spouse will receive £4,433 less each year, if Bill dies as a preserved member.
Summary
This shows the type of change that can happen to your spouse’s pension benefit 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: Spouse’s death benefits v1.3 Preserved
Last reviewed 10/08/2009
352 v1.3
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