We think remarkably little about the value of an occupational pension scheme to a household, which is odd, because most pensions and benefits we receive from the state are paid to the household. This article argues that we focus too much on the defined benefit to the pensioner whose earned the benefit and not enough on supporting those who may survive that person and inherit some of his or her income.
What research is there?
It’s been eight years since the DWP last surveyed occupational schemes to find out the benefits they paid to the surviving partners of people who die in receipt of an occupational pension.
The language of the documents is difficult “residual pensions“, “surviving partners“, “eligible beneficiary” – it’s a cold legal language that is incongruous with the tenderness of the bereavement process. But these financial matters need to be explained.
Yesterday , I explained how many people who bought an annuity with their pot, purchased no surviving pension for their partners, leaving the partner on a cliff-edge with often only pension credit to stop them falling into pensioner poverty.
If you are partner to someone in an occupational scheme, whether married or common-law, you are likely well served. But working out what the change in financial circumstance following a partner’s death is hard when there’s so much else going on in your head.
Having worked alongside a DB administration team, I know that dealing with bereavement can be very hard. I don’t think this tough subject gets the recognition it needs. It is really hard, as you’ll work out if you delve into the complexity of Scheme rules as the DWP did. Here are a few examples.
Public service schemes exceed the statutory minimum requirement in respect of survivor benefits for same sex couples, by providing benefits that take into account service since 1988 and not only service since 2005. However, the majority of public service schemes only take into account service from 1988
when calculating same sex survivor benefits, and so rely on paragraph 18 of schedule 9 of the Equality Act.
Thinks aren’t any easier in the private sector, a 2013 DWP investigation found that
- 95 per cent of all schemes questioned provided some survivor benefit
- One per cent of schemes that provided survivors’ benefits and had benefits accrued prior to 1990 had a difference in the way survivor benefits were typically calculated for opposite sex widows and opposite sex widowers before 1990 (equating to 28 schemes on a grossed up weighted basis):
• 27 per cent of schemes that provided survivor benefits to civil partners and had benefits accrued prior to 2005 had a difference in the way benefits were typically calculated between those in a civil partnership and those in a
marriage of an opposite sex couple (equating to 1,334 schemes on a grossed up weighted basis): and
• Of those 27 per cent of schemes, two-thirds (65 per cent) did not take account of any accruals before 2005 when calculating surviving benefits for those in a civil partnership.
There’s a wide disparity of treatment between various categories of partners within schemes and the differences in levels of benefit from scheme to scheme.
Despite efforts to equalise things, men and women, gays and heterosexuals , married and civil partnerships all get different treatment. Many get different treatment from different sections of a scheme often depending on when they joined the scheme or left service.
If you’re in a DC scheme, things tend to be simpler, you are typically choosing the level of protection you give to your spouse by the type of annuity you buy or the way you organise your drawdown.
The surviving partner doesn’t get much say and (from experience), few know what rights they have to a residual pension of lump sum if their partner dies before them.
Pensioners now have the advantage of being able to consult websites which typically help them on this, but with so many differences , they may often have to make awkward calls to scheme administrators or get their partners to make the inquiry on their behalf.
The bottom line is that this does not make for easy planning, especially if you’re not too confident about the questions to ask or your right to ask them. (like my Mum)
It would be a lot easier if occupational pension scheme trustees and administrators knew their pensioners better but sadly pensioner support services on the decline. As DB schemes close and become a “liability not an asset” to employers, bosses are less likely to sink resource into providing pensioner clubs and into the kind of help people need to understand what will happen if the current pensioner dies. This includes understanding the position with regards state benefits (including pension credit).
Pension Insurance Corporation is one DB scheme that does hold seminars for its members but this is a rare practice amongst insurance companies buying out benefits. For the most part pensioners these days have little contact with their trustees and some insurance companies have yet to recognise those liabilities they have bought out – are real people.
You may have little sympathy for the average well-heeled occupational pensioner , but many pensioners I speak to are puzzled and confused about what they are and aren’t receiving.
It’s those with the least financial capability that are the greatest worry – the oldest, the least well-pensioned, those who never worked for the employer but are pensioned with the grimly termed “survivor’s benefit”.
I am interested in this group as they seem (as my Mum is) to be most in need of support at the point of bereavement. Support must be to the household and that may include those who have responsibility for caring for their parents and elderly relatives.