Some hard and fast rules of inheriting your spouses’ state pension
The state pension has long been considered a crucial aspect for the financial stability of an ageing population. It’s a sum of money many people look forward to receiving after they reach the state retirement age and there are factors that play a part in how much will be issued, for instance; how many national insurance payments have been made.
However, inheriting the sum of that money from a partner can become a tricky and confusing process and can be one of the reasons why financial advisors are required.
What are the requirements for inheriting your spouses’ state pensions? What are the consequences, the policies and the challenges that make up the overall process? Let’s go through a few of the prominent (and not so prominent) rules and regulations on state pension inheritance.
Inheriting pensions are only for married spouses or civil partnerships
As it stands, you can only inherit your other half’s pension if you are married or you have a civil partnership and, in addition, if you are remarried but your former spouse passes away, you will NOT be entitled to his/her pension. The government has stated that you won’t be able to inherit anything if you remarry or form a new civil partnership before you reach state pension age.
In some instances, you may inherit lump sums from your partner’s pension
It is possible to inherit a lump sum from your partner’s pension but there are certain circumstances you should take note of. If your partner passes away in the midst of deferring his/her state pension (before claiming), you are eligible for a lump sum. Similarly, you are eligible for a lump sum if he/she had started to claim it after deferring, if he/she reached state pension age before 6 April 2016 (the new state pension changes) or if you were married/in a civil partnership when he/she died.
In reference to divorcees
If you are divorced or your civil partnership is dissolved, the courts can make a ‘pension sharing order’. You can get an extra payment on top of the state pension if your ex-partner is ordered to share his/her additional state pension or protected payment with you.
Your state pension payments can be passed after death but only to spouses or partners
The main pension rule governing state pension in death is related to whether you reached state pension age before or after the recent state pension changes which came into effect on 6 April 2016. If you reached state pension age before this date and receive a basic State Pension, your civil partner or spouse can claim your Additional State Pension (based on your National Insurance Contribution record).
Inheritance in relation to the widow pension element
There’s a caveat in the rules in relation to the window pension element after the death of a pension holder. Some pensioners with spouses that are 10 or more years younger than themselves have been informed that the widow’s element will be reduced by about 2 per cent for each year greater than 10 (subject to the trustees’ agreement). This is an alarming notice that seems rather ageist at first.
In some instances, the scheme has an absolute legal duty to pay a widow’s pension without restriction in any way but in other instances, paying a widow’s pension is at the discretion of the scheme, with a certain amount of freedom to define that benefit in its own way.
Schemes must follow the legal minimum
According to the legal minimum since 6 April 1997, for years that you’ve worked for an employer in question, the scheme is usually obliged to pay a widow’s pension of at least 50 per cent.
Companies who offer pensions instead of SERPS need to offer pensions for widows (regardless of age difference). However, services before 1997 with schemes that weren’t ‘contracted out’ may not have any legal duty to provide widow’s benefits. Benefits, in this case, fall under a voluntary addition to existing rights, which allows more flexibility for schemes to define them. This was probably used to stop people from abusing the system through ‘deathbed marriages’ or other actions. In any case, you should be able to contact the trustees and suggest they revisit the rules.