Redundancy: Spouse s Death Benefits. For Preserved Members of Defined Benefit Schemes

Transcription

1 Redundancy: Spouse s Death Benefits For Preserved Members of Defined Benefit Schemes

2 Redundancy: Spouse's death benefits* Preserved Members 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. 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: 1. A percentage of your pension paid to your spouse (e.g. 50%, 60%, 66.67%). 2. A statutory minimum pension (the minimum required by law if it applies to your scheme). 3. 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. 2

3 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: 1. 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%). 2. 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. 3. 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). Example Bill Smith before and after being made redundant. Member of his defined benefit scheme. He has 30 years pensionable service, 1/60 th scheme basis. His pensionable salary was 34,000 p.a. His pension is worth 17,000 p.a. Spouse s pension on Bill s immediate death: 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. 3

4 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 v1.2 Preserved Last reviewed 19/01/ v1.2 4

5 This page is intentionally blank. 5

6 This Factsheet contains general information on particular points of interest associated with pensions but is not intended to be a complete or authoritative guide. MyCompanyPension.co.uk Ltd is not registered with the Financial Services Authority and does not give advice under the terms of the Financial Services and Marketing Act This Factsheet does not constitute any form of advice or recommendation and should not be relied on in making (or refraining from making) any specific personal or business decision. MyCompanyPension.co.uk Ltd PO Box 240 Telford TF6 5YN enquiries@mycompanypension.co.uk MyCompanyPension.co.uk Ltd 2009