SERPS SERPS. pension. Inheritance of. Inheritance of. Important information for married people. State Earnings-Related Pension Scheme (SERPS)

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1 Important information for married people Part of the Department for Work and Pensions pril 2005 Inheritance of Inheritance of SERPS pension SERPS State Earnings-Related Pension Scheme (SERPS)

2 Inheritance of SERPS pension No matter what age you are, or whether you re married or planning to marry in the future, this leaflet has important information about the SERPS pension. It explains the rules on inheriting the SERPS pension. The rules do not affect your basic State Pension. You may find this leaflet helpful when you are considering your own, and your spouse s (husband s or wife s), financial plans for the future. (In Scotland, if you are married by habit and repute [that is, you and your partner live together and your relationship is recognised as a marriage as set out in Scottish law], you will be treated as if you were married for the purposes of inheriting a SERPS pension.) This guide went to press in pril Changes to the law after that date may affect some of the rules explained here. In particular, the Civil Partnership ct 2004 is expected to come into force on 5 December This will change the way we treat same-sex couples. When that happens, people of the same sex who have formed a civil partnership will be treated, as far as possible, in the same way as a married couple. Surviving civil partners will have the same State Pension rights as widowers. The Government has set up The Pension Service part of the Department for Work and Pensions to focus on the needs of today s and future pensioners. 1

3 What is SERPS? The State Earnings-Related Pension Scheme (SERPS), a form of additional State Pension, ran from 6 pril 1978 to 5 pril 2002, when it was replaced by the State Second Pension. While you, or your spouse, have been working, you may have paid National Insurance contributions into SERPS as well as into your basic State Pension. There are also conditions that allow some or all of a person s SERPS pension to be inherited by their spouse when the SERPS contributor dies. This leaflet explains how much of and when the SERPS pension can be passed on when the contributor dies. How do I know if I paid into SERPS? You may have paid into SERPS through your National Insurance contributions while you were working. You may have chosen to join a private pension scheme, rather than SERPS, during your working life. This is called contracting out. Private pension schemes include occupational pension schemes (also called superannuation or employers schemes), personal pensions and stakeholder pensions. If you joined a contracted-out occupational pension scheme, you and your employer paid lower National Insurance contributions to make up for the SERPS pension you gave up. If you contracted out of SERPS using a personal pension plan or a stakeholder pension plan, the Government paid part of your National Insurance contributions into the plan for you once a year. This is known as a rebate. ny SERPS pension you may have earned from pril 1978 to pril 1997 is reduced if you were a member of: a contracted-out occupational pension scheme; or a personal pension scheme (called an appropriate personal pension). We call this reduction the contracted-out deduction. From pril 1997, you may have either: earned an additional State Pension by being a member of SERPS; or earned an occupational or personal pension by being a member of a scheme that is contracted out of SERPS. You will not get a SERPS pension for any period after pril 1997 when you paid reduced National Insurance contributions because you had contracted out of SERPS. 2 3

4 What was the change to the rules on inheriting a SERPS pension? In 1986 the Government changed the law to reduce the maximum amount of SERPS pension (to 50 per cent) that a person widowed after pril 2000 could inherit from their late spouse. Previously, widows or widowers could, depending on certain conditions, inherit a maximum of 100 per cent of their late spouse s SERPS pension. But, for many years after 1986 some people were given incorrect or misleading information about the change and may have planned for their future on that basis. s a result, the Government postponed the change to the rules on inheriting a SERPS pension and announced further rules for the maximum percentage of a SERPS pension that can be passed on to a widow or widower, when someone who has paid into the scheme dies. (See What do you mean by maximum percentage? on page 6 and the table on page 5.) These rules have applied since 6 October n overview of the change to the SERPS pension inheritance rules The table below gives you an idea of the maximum percentage of SERPS pension that can now be passed on to the surviving spouse when the contributor dies. Date of birth of Date when Maximum % SERPS contributor: contributor pension that can reaches State be inherited by a Men Women Pension age surviving spouse % or earlier or earlier or earlier % to to to % to to to % to to to % to to to % or later or later or later 4 5

5 What do you mean by maximum percentage? What do you mean by State Pension age? In some circumstances the amount of a SERPS pension a surviving spouse can inherit may be less than the maximum percentage. There is a set maximum to the amount of a SERPS pension that any person can receive (including both their own SERPS pension and any inherited SERPS pension). From pril 2005, the figure is a week. State Pension age is the earliest age from which you can get your State Pension and is currently 60 for women and 65 for men. It is changing, and will be made equal at 65 for men and women. This change will take place gradually between 2010 and For example (from pril 2005) Mrs Smith has a 60 SERPS pension (based on her own National Insurance contributions). Her late husband, before his death, was receiving a 100 SERPS pension. Mr and Mrs Smith s combined SERPS pension is more than the current maximum SERPS pension that can be paid to one person. s a result, Mrs Smith would be able to inherit of her late husband s 100 SERPS pension which, when added to her 60, makes For women born on or before 5 pril 1950 the State Pension age will remain at 60. Women born on or after 6 pril 1955 will have a State Pension age of 65. Women born on or between 6pril 1950 and 5 pril 1955 will have a State Pension age between 60 and 65. For more information, please call and ask for our leaflet, Pensions for women Your guide (PM6). ( textphone service is also available on ) Calls are charged at local rates and the line is open 24 hours a day. lso, the amount of a SERPS pension you can inherit when you reach State Pension age will be reduced if either: you were receiving Bereavement llowance at less than the full rate, or you were under 55 when your Widowed Parent s llowance ended. 6 7

6 If you are a woman How will the SERPS inheritance change affect me? The changes may affect you if you inherit your late husband s SERPS pension (up to the maximum amount of SERPS pension payable see pages 5 and 6) in the following circumstances. If you are over State Pension age when your husband dies, you can receive his SERPS pension right away. If you are under State Pension age and receive Widowed Parent s llowance, you will receive your late husband s SERPS pension right away. If you are under State Pension age and your entitlement to Widowed Parent s llowance stops, your payment of SERPS pension will also stop. It will be restored when you reach State Pension age, as long as you have not remarried and were entitled to Widowed Parent s llowance at any time over the age of 45. If your Widowed Parent s llowance ended before you reached 55, you will inherit less SERPS pension when you reach State Pension age. If you are under State Pension age and are entitled to Bereavement llowance, you will receive your late husband s SERPS pension only when you reach State Pension age, as long as you have not remarried. If you were bereaved before age 55, there will be a reduction in the amount payable. You can find more information on Widowed Parent s llowance and Bereavement llowance in our leaflet Widowed? (GL14), which you can get from your nearest pension centre, Jobcentre Plus office, Jobcentre or social security office. If you are widowed, you should let your Jobcentre Plus office or social security office know and The Pension Service will work out the amount of SERPS pension you can inherit. But you may want to consider the information in this leaflet to help you with your financial planning for the future. Who will be able to inherit a maximum of 100 per cent of the SERPS pension? You will be able to inherit a maximum of 100 per cent of your late husband s SERPS pension if you were widowed on or before 5 October 2002 and you qualify for an inherited SERPS pension as part of your State Pension, Widowed Mother s llowance, Widowed Parent s llowance or Widow s Pension. Your SERPS pension will not be reduced as a result of the change to the rules about inheriting a SERPS pension. You may be able to inherit a maximum of 100 per cent SERPS pension if your late husband reached State Pension age on or before 5 October 2002 and you were widowed after that date and qualify for Widowed Parent s llowance or a State Pension as a widow. 8 9

7 If you are a man Who will inherit less than 100 per cent of the SERPS pension? If you were widowed on or after 6 October 2002 (and your late husband had not reached State Pension age before 6 October 2002), the maximum percentage of his SERPS pension that you can inherit will depend on the date that your husband would have reached State Pension age if he had not died. The most that you can inherit will be between a maximum of 50 and 90 per cent of your late husband s SERPS pension. This is shown in the table on page 5. Can I inherit a SERPS pension if I am widowed after I reach State Pension age and my husband is under State Pension age when he dies? If you are widowed you will be able to inherit your late husband s SERPS pension whether he dies before or after reaching State Pension age. The percentage that you can inherit appears in the table on page 5. How will the SERPS inheritance change affect me? The changes may affect you if you inherit your late wife s SERPS pension (up to the maximum amount of SERPS pension payable see pages 5 and 6) in the following circumstances. If both you and your wife are over State Pension age when she dies, you will receive her SERPS pension right away. If you are under State Pension age and receive Widowed Parent s llowance, you will receive your late wife s SERPS pension right away. If you are under State Pension age and your entitlement to Widowed Parent s llowance stops, payment of your inherited SERPS pension will also stop. It will be restored when you reach State Pension age, as long as you have not remarried and were entitled to Widowed Parent s llowance at any time over the age of 45. If your Widowed Parent s llowance ended before you reached 55, you will inherit less SERPS pension when you reach State Pension age. If you are under State Pension age and are entitled to Bereavement llowance, you will receive your late wife s SERPS pension only when you reach State Pension age, as long as you have not remarried. If you were bereaved before age 55, there will be a reduction in the amount payable. You can find more information on Widowed Parent s llowance and Bereavement llowance in our leaflet Widowed? (GL14), which you can get from your nearest pension centre, Jobcentre Plus office, Jobcentre or social security office

8 If you are widowed, you should let your Jobcentre Plus office or social security office know and The Pension Service will work out the amount of SERPS pension you can inherit. But you may want to consider the information in this leaflet to help you with your financial planning for the future. Who will be able to inherit a maximum of 100 per cent of the SERPS pension? You will be able to inherit a maximum of 100 per cent of your late wife s SERPS pension if you were widowed on or before 5 October 2002 and you qualify for an inherited SERPS pension as part of your State Pension or Widowed Parent s llowance. Your SERPS pension will not be reduced as a result of the change to the rules about inheriting a SERPS pension. Who will inherit less than 100 per cent of the SERPS pension? If you were widowed on or after 6 October 2002 (and your late wife had not reached State Pension age before 6 October 2002), the maximum percentage of her SERPS pension that you can inherit will depend on the date that your wife would have reached State Pension age if she had not died. The most that you can inherit will be between a maximum of 50 and 90 per cent of your late wife s SERPS pension. This is shown in the table on page 5. If you are over State Pension age, you can only inherit a SERPS pension from your late wife if she reached State Pension age before she died. This changes in 2010 see below. You may be able to inherit a maximum of 100 per cent SERPS pension if your late wife reached State Pension age on or before 5 October 2002 and you were widowed after that date and qualify for Widowed Parent s llowance or a State Pension as a widower. Can I inherit a SERPS pension if I am widowed after I reach State Pension age and my wife is under State Pension age when she dies? Until the law changes in pril 2010 you cannot inherit your late wife s SERPS pension unless you fall into one of the categories set out on page 11. If you reach 65 on or after 6 pril 2010, you will be able to inherit your late wife s SERPS pension whether she dies before or after reaching State Pension age. 12 The percentage that you can inherit appears in the table on page 5. 13

9 What is the State Second Pension? Gender Recognition ct 2004 The Government reformed the SERPS pension in pril 2002 to provide an additional State Pension that is more generous for low and moderate earners, and extended access to include certain carers and people with long-term illnesses or disabilities who have only worked on and off. This is called the State Second Pension. What percentage of State Second Pension can someone inherit? The maximum amount of State Second Pension that a person will be able to inherit from their husband or wife is 50 per cent. This applies no matter what date they reach State Pension age. The inheritance rules for the State Second Pension will not affect the rules for inheriting a SERPS pension that are set out in this leaflet. For more information on the State Second Pension, please call and ask for our leaflet, State Pensions Your guide (PM2). ( textphone service is also available on ) Calls are charged at local rates and the line is open 24 hours a day. From 4 pril 2005, if you get a full Gender Recognition Certificate you can receive State Pension and benefits in your acquired gender. You can get more information on the effect of gender recognition on benefits from the gender recognition website This leaflet and the law This leaflet cannot cover every situation or problem, or provide a full interpretation of the rules for all cases. It is for guidance only and is not a complete and authoritative interpretation of the law. Delivering public services and information online for disabled people and carers

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11 You can get more copies of this leaflet free of charge by calling (textphone users please call ) and giving reference SERPSL1. Or visit our website at ISBN: Crown copyright Produced by The Pension Service, part of the Department for Work and Pensions. Printed in the UK. pril SERPSL1 General enquiries (textphone users call )