12th November 2015 at 3:00pm
There has been a lot of commentary in the media recently around when your loved ones are entitled to a pension on your death, so we thought we’d take this opportunity to shed some light on the area.
Pension legislation can be quite complicated, but when it comes to employment stretching back a number of years, things become particularly tricky. And in recent years with the introduction of civil partnerships and same-sex marriages, the position gets more complex.
The 3 key things that affect when a spouse or civil partner can have a survivor’s pension are:
The type of private pension scheme involved
How far back the service (employment/membership of the scheme) goes
The type of legal relationship involved – there are differences where same-sex relationships are concerned, for example
Type of pension
When talking about a private pension in these circumstances we mean occupational pension (or company pension) schemes and public sector pension schemes only.
These types of schemes have been around for many years and have had to evolve to meet changing rules, but they still have a lot of historical aspects that continue to impact today.
For public sector schemes, service since 1988 can be used to support a survivor’s pension for civil partners and same sex spouses.
However, for other occupational schemes, it comes down to the type of relationship and what the individual rules of the scheme say.
Type of partnership
The Civil Partnership Act, allowing same-sex couples to register a Civil Partnership, first became effective on 5 December 2005, so these schemes can choose to only allow service since that date to provide survivor’s benefits, and approximately two thirds of these schemes have taken this approach.
A recent court case tested whether this was unlawful discrimination under the 2010 Equality Act and the judge ruled it wasn’t as there is a specific exemption within that act covering this situation.
In the ruling the judge confirmed that schemes can restrict access to a survivor’s pension in relation to service accrued before civil partnerships became recognised in law. This was despite an earlier ruling by an employment tribunal that the scheme was breaking European law.
Why is this approach taken?
The key reason that schemes are going down this route is likely to be funding, particularly for defined benefit pension schemes, where the cost of providing a guaranteed income rests on the employer.
Many employers have struggled in recent years to meet the funding of these types of schemes and having to then provide for a wider category of survivor could make these schemes difficult to continue.
Media reports suggest that there are around 70,000 same-sex marriages/civil partnerships who would be affected by this and the amounts quoted range from £2.9BN to £3.3BN.
When the 2013 Marriage (Same Sex Couple) Act (England and Wales), and the 2014 Marriage and Civil Partnership (Scotland) Act came in, these Acts did not do anything to ‘override’ this approach, so it continues to be up to individual schemes as to what service they will include for same-sex survivor’s benefits.
The state pension
Turning now to the state pension, provision is changing from next April with the introduction of the flat rate or single-tier pension and the rules around spouse/civil partner benefits are also going to change as a result.
However, there will be some transitional protection.
Entitlement to state pension is based on a person’s national insurance (NI) record and the provision on death tends to look at the survivor using their late spouse/civil partners NI record to top up any shortfall in their own record when they reach pensionable age.
Unlike private pension provision as outlined above, there aren’t the service restrictions so a surviving same-sex spouse or civil partner can use their late partner’s NI record fully in the same way as an opposite-sex spouse can.
The only restriction that does apply is around the earliest date that a same-sex spouse or partner becomes entitled to use that record.
So, if you think you’ll be affected by this, what should you do?
First of all, check with your pension scheme regarding your particular circumstances.
If you find out that the survivor’s pension doesn’t fully represent your period of membership, then consider taking financial advice as there may be things you can do to improve the situation, for example, by transferring to another kind of pension.
For the state pension you can contact the Pension Service for further information.
For information on requesting a Beneficiary Nomination form, see our article ‘Passing on pension savings to your loved ones’
Because of the apparent ‘mismatch’ between European and UK law in this area, this particular issue is likely to continue in the future.
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The information in this blog or any response to comments should not be regarded as financial advice. A personal pension is an investment and its value can go up or down and may be worth less than you paid in. Laws and tax rules may change in the future. The information here is based on our understanding in November 2015. Your personal circumstances also have an impact on tax treatment.