Of course, as all the rules of pensions can vary, it is important that married couples are encouraged to check the rules of their pension schemes as to whether a partner would be entitled to payments upon death, so they can financially plan for their families’ future if they are not eligible.
Likewise existing widows/widowers should be urged to check the rules of their late spouses’ pension schemes to see if they will be entitled to any payment, and if so whether this entitlement continues even if they remarry.
Under the state pension, the rule change in 2016 meant that no one could inherit their late husband / wife’s pension, unless s/he had passed before 2016 and were not at state pension age.
Although this rule change will not benefit future generations, many eligible people are unaware it could help them (only if they have not already remarried, and in that case they will not receive payments).
Of course private pension schemes all have different terms and conditions, and the benefits of each can vary enormously.
Some allow payments upon remarrying, and some do not. The state pension too of course has its own rules and you can see how all these can be easily confused.
What should you advise clients who are confused about their eligibility for certain benefits and what key issues should you advise them to be aware of?
- Ideally the pension issue should be considered by the couple before the death of the pension member.
- When planning wills both should be advised to consider the terms of the other's pension;
- On death of the member the remaining spouse should be encouraged to fully investigate the terms of their former spouse’s pension to ensure that they do not unwittingly lose entitlement by remarrying.
Divorce
Although no-fault divorce will be a welcome change if it is introduced this year – the Divorce, Dissolution and Separation Bill was approved by Parliament last month but will not be implemented until 2021 – couples must still bear in mind the important financial disclosure elements to divorce, even if they fear it will make the dispute fractious.
Without considering it appropriately, it could leave one partner high and dry. As financial advisers will know, during the divorce process, each spouse must make a ‘full and frank’ disclosure of their financial assets, even those not matrimonial, which includes pensions.
Sometimes a spouse will withhold information about some of their financial assets, or ‘hide’ them so to speak, which can be done with pensions.
This leaves an ex-partner without access to a pension that they are entitled to and could lead them into unexpected financial problems in the future.
It is important for financial advisers and family lawyers during this process to both consider what would benefit their client.
For example the three options are: splitting the pension between the ex-couple, paying a segment of their retirement income, once they start receiving it, to their ex-spouse, or the risky option of offsetting the pension’s value against other financial assets, which could mean a partner is left with just a pension.
