Death of a partner and its effect on income?

[Gilgongo]

I don't see much out there about whether the death of a partner might have an effect on the income of the survivor. I undertand that pension policies have expressions of wishes, but there always seems to a bit of a veiled warning that the wish might not be upheld.

I suppose in theory your outgoings also go down, but is that necessarily the case? So is this something worth thinking about, and if so are there any mitigating strategies?

G

[gryffron]

there always seems to a bit of a veiled warning that the wish might not be upheld.

It never happens. This is one of the things that frightens so many people about Pensions. People always fear the trustees will pocket your money. It's the wording "discretion of the trustees" isn't it? But it really shouldn't. It is discretionary solely to prevent lawsuits consuming all the money. Pension Trustees move heaven and earth to do "what the policyholder would have wanted".

Sure, you can find a few horror stories from people claiming they have been "robbed". But they usually come from divorced or separated ex-spouses who think they are entitled to the money even though they hadn't seen the policyholder for decades.

To any neutral observer, Trustees do a great job - always!

True Example. GEC Fund.
A member died in service. His next of kin was still listed as his mother, from when he joined the company 40 years previously. But she was already dead. He wasn't married, had no children, no living relatives. Pension trustees talked to all his colleagues, friends and neighbours. It quickly became clear the man was heavily engaged with the Salvation Army. It was literally his whole life away from work, and filled every free moment. So in the end, they paid his death-in-service benefit to the Sally Army. Because, it is "what he would have wanted".

By all means check that your expression of wishes is up to date. But you would do much better to worry about the fees they are taking from your pension NOW, rather than what might happen after you die.

Gryff

[Gilgongo]

Ah OK - thanks. So I guess that just leaves the issue of the state pension stopping when the partner ceases to be, and whether that might be an issue for the survivor?

[Gerry557]

Some pensions only pay half to spouse. Most here tend to decide the investing side of things. Does the partner take any interest or even know how to log in and access the investments.

I have seen several comments to the effect of.... I'm moving into It's as it will be easier for them to manage when I'm gone.

[Gilgongo]

Some pensions only pay half to spouse. Most here tend to decide the investing side of things. Does the partner take any interest or even know how to log in and access the investments.

Yes, the issue of whether the surviving partner is able to manage the income is another matter of course. Partly why I'm in the process of collapsing my HYP of 30 into two ITs, for example.

[ten0rman]

This is/was something I looked into two or three years ago when I decided to produce a document for my executors (our children) in the certain event of my death(!) and with the more or less certainty that my wife will be left on her own.

I'm fortunate that I have a FS pension, which includes certain difficulties such as GMP, or COD, or whatever. (OK, I'm being facetious there because as far as I can tell GMP & COD are one and the same. What is true, is that the complexities of GMP/COD have made it almost impossible for Mr Average to be able to check that they are receiving the right pension. But, there we are!) Unfortunately, the GMP/COD has resulted in part being paid by the state such that my State Retirement Pension is made up of the Basic State Retirement Pension plus the GMP/COD element. The FS pension is also something of a cockup as over the years it changed from a non-contributary Civil Service pension paying 1/3 Widows & Orphans pension to a contributary pension paying 1/2 Widows & Orphans except that the Civil Service part remained at 1/3 - unless you took the option to pay extra and increase it to 1/2, which is what I did.

So, at the moment we are receiving my works pension, plus my enhanced State Retirement Pension plus my wife's Basic State Pension.

So, when I finally pack it in, it turns out that my widow gets a works pension equivalent to exactly 1/2 whatever amount I was receiving, plus, her State Retirement Pension gets boosted due to my GMP/COD element, whilst my State Retirement Pension ceases. Overall, as far as I can determine, my widow will receive slightly more than half of what we were receiving before my death. Whether she can manage or not is up to her! But there should be some reductions in living costs, eg Council Tax plus the cancellation of various subscriptions, plus sale of the caravan and hence cancellation of its storage fee.

What I did do was to write to both my works pension provider and the Department for Works & Pensions (DWP) to request pension quotes. That was in 2018. I don't need to contact my works pension provide again as that is pretty much fixed, but I do have it in mind to request another quotation from DWP.

However, as it happens we are currently living satisfactorily well within these pensions which means that our investments, and yes they are about 97% IT's held within ISA's, have been left to grow as they will which means that all being well she should be OK. Of course, there is the problem that either of us could end up in care and that will make a complete mess of our planning.

But this investment growth has introduced another problem - that of Inheritance Tax (IHT)! And currently I am wondering how to reduce that, legally of course. Given our ages, and the difference between us (I am almost 8 years older than my wife) plus I have lung cancer, it makes it almost certain that for me to make Potentially Exempt Transfers (PET) is probably a waste of time in that should I peg it before the seven years are up, it will make things difficult for my executors, calculation wise. For my wife though, a PET is very likely to be successful. But, of course, giving away sums of money in an attempt to reduce IHT then runs the risk of having insufficient income for my wife's needs after my death.

Incidently, my wife does not know much, if anything, about our finances. She outright refused to do the Probate on my death, hence my executors are our children. Frankly, she doesn't want to know - as long as she gets enough for her & our daily needs, that's all she cares about.

All in all, it's a real quandary as to what to do for the best.

Cheers,

ten0rman

[mc2fool]

What I did do was to write to both my works pension provider and the Department for Works & Pensions (DWP) to request pension quotes. That was in 2018. I don't need to contact my works pension provide again as that is pretty much fixed, but I do have it in mind to request another quotation from DWP.

A little puzzled here ... at first, with your mentions of BSP + GMP/COD (it's actually BSP + GRB + GrossASP - COD, but that's another matter!) I thought you must have reached state pension age before 6-Apr-2016, but that paragraph above indicates that you have yet to reach state pension age -- in which case it may be even more complex than you thought (depending on how complex you thought it was in the first place, of course!)

But before we get into the twists added onto GMP/COD complexities by the 2016 transition to the new state pension rules, which really needs a separate thread of its own, I suggest that, rather than requesting a quotation from DWP, you sign up for the online service, then you can just log in and get an instant quote anytime you like.

https://www.gov.uk/check-state-pension

[ten0rman]

mc2fool,

I don't understand how I have managed to give you the impression that I have yet to receive my state pension. But ne'er mind eh?

Just for the record, I took early retirement at the end of 1994, ie 27 years ago. I then reached state pension age in 2008, ie 13 years ago. My wife reached state pension age in 2012, ie 9 years ago. All my recent planning has been based the above dates along with the various entitlements, eg GMP/COD. As far as I know, the only way to obtain a pension forecast of what my wife will receive when I die, assuming I die first, is by requesting one from DWP and stating that it, the forecast, is to assume my death.

Having looked quickly at the "check-state-pension" website, it would appear applicable only to those who are yet to draw their state pension which does not apply to us.

Further, it would seem from the covering letter from DWP, that I telephoned them to request the information:

"Thankyou for your phone call of (date) about what State Pension your spouse will be entitled to if you died".

The letter then goes on to show how it is worked out and talks about SERPS, and states:

"The amount your spouse will inherit represents up to 70% of your entitlement."

Hope this clarifies things a bit better,

ten0rman

[mc2fool]

I don't understand how I have managed to give you the impression that I have yet to receive my state pension. But ne'er mind eh?

'Twas the statement that you were going to request another quotation from DWP, which one usually only does before starting to receive the state pension ... but then I somehow missed a vital line or two earlier in your post that now glaringly stands out at me! So, sorry, as the kids say nowadays, my bad!

[YeeWo]

But this investment growth has introduced another problem - that of Inheritance Tax (IHT)! And currently I am wondering how to reduce that, legally of course. Given our ages, and the difference between us (I am almost 8 years older than my wife) plus I have lung cancer, it makes it almost certain that for me to make Potentially Exempt Transfers (PET) is probably a waste of time in that should I peg it before the seven years are up, it will make things difficult for my executors, calculation wise.

While its undoubtedly ethically questionable, what is to stop you liquidating your entire portfolio while-alive, purchasing bullion with the proceeds and placing said bullion in a safe in your loft?

[swill453]

But this investment growth has introduced another problem - that of Inheritance Tax (IHT)! And currently I am wondering how to reduce that, legally of course. Given our ages, and the difference between us (I am almost 8 years older than my wife) plus I have lung cancer, it makes it almost certain that for me to make Potentially Exempt Transfers (PET) is probably a waste of time in that should I peg it before the seven years are up, it will make things difficult for my executors, calculation wise.

While its undoubtedly ethically questionable, what is to stop you liquidating your entire portfolio while-alive, purchasing bullion with the proceeds and placing said bullion in a safe in your loft?

Inheritance tax would be due just the same, so how would that help?

Scott.

[ten0rman]

While its undoubtedly ethically questionable, what is to stop you liquidating your entire portfolio while-alive, purchasing bullion with the proceeds and placing said bullion in a safe in your loft?

Weight?

Seriously though, best ideas so far is to:

1. Continue giving small lump sums to grandchildren out of excess income;
2. For me to use £3K from this year, last year & next year to give to our three children; and
3. For my wife to give PET's to each of our three children.

Cheers,

ten0rman

[Kantwebefriends]

"I then reached state pension age in 2008, ie 13 years ago. My wife reached state pension age in 2012, ie 9 years ago."

Right, so you both get the old-style state pension. What you should seriously consider now is the YOU BOTH SUSPEND payment - the preferred term is that you "defer" it. For each year of deferral your state pension will increase by 10.4%.

Moreover it's conceivable that if you report your deferral to your final salary scheme they will give you a pay rise while the state pension is deferred. (It happened to me - it's to do with the very interaction with state pension that you complained about, caused by my having been "contracted in" for a period.)

For your wife: suppose she defers for 3 years - bingo, her state pension will be more than 30% bigger when she restores it (plus she'll get all her increase with inflation too). For you: you need to calculate how much of your extra pension your widow will inherit - for us it turned out to be 90%, which made the deferral worthwhile even though I'm likely to die long before her.

Meantime you make up any shortfall of income by spending some of your accumulated capital, thus neatly cutting your estate's potential future IHT bill.

Also, your wife should open a personal pension of some sort (e.g. a SIPP) and put in the permitted amount per tax year (£2,880 net = £3,600 gross) until she passes age 75. Currently, if she will later need income from that SIPP she can draw it down, 25% being tax-free. If she doesn't need it she can leave it be, nominating that your children or grandchildren receive the capital on her death - free of IHT.

After all those are in place, gift IHT-efficiently whatever you are confident you can afford. You have to guess: my own guess is that we have already gifted all that we can afford without taking the risk of my widow running short of money. So only tiny gifts from us in future. BOMAD has effectively closed for business.