Tracey Dawson: What does the future hold for dependants’ pensions?

Dawson Tracey-PQM-2015

From April 2015, workers are able to access their pension savings more flexibly. Gone are the days of being railroaded into an annuity at retirement. 

Employees are now free to withdraw their savings as a one-off lump sum, or as a series of lump sums, and use the money for anything they wish: to repay debt, fund home improvements or pay for a holiday. The government has even announced that, from April 2015, those who have already bought an annuity will be able to resell it in exchange for a lump sum.

However, amid the excitement of this new and radically different pensions landscape, there is one important issue that could easily be overlooked: the dependant’s pension.

When workers bought an annuity, they could choose a ‘joint life’ annuity. Their starting pension was a little lower, but when they died, pension instalments at their chosen rate would continue to be paid to their spouse for the rest of their life.

But what if the member dies, having taken their entire pension as a lump sum and spent it? This could leave their spouse with no income. 

After 2016, new state pension rules will curtail the use of a spouse’s record to increase state pension entitlement, so a bereaved person might not even get a full state pension.

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The important message is that people should make sure that their spouse will have enough to live on. A little time spent getting this set up will allow them to relax and enjoy their retirement, confident that their spouse will have a good quality of life after their death.

Tracey Dawson is policy and assessment manager at The Pension Quality Mark