Steve Webb: a conscious uncoupling should not compromise your pension

Pension Clinic: the former pensions minister, now at Royal London, outlines the rules on pension payments for those whose partners or spouses no longer live with them or have died.

One of the pension questions that I get asked most frequently relates to the impact on pensions of a change in marital status or living arrangements. The question will often come from someone in later life. Such people are often confused about the effect on their state or company pension of getting married, moving in with someone or remarrying after being widowed. I will try to cover the main facts they need to be aware of.

Starting with the state pension, the most important thing to know is that living with someone as one half of a couple (married or in a civil partnership) has no bearing on your state pension entitlement, although it could affect your entitlement to means-tested benefits such as pension credit or housing benefit.

Know your rights

For those who reached state pension age under the old system, before 6 April 2016, there is a quite complex set of entitlements based on the national insurance contributions of past or present spouses. For example, those who divorced before state pension age could claim a pension based on their former spouse’s national insurance (NI) record, and those widowed before state pension age had similar entitlements. It was also quite common for married women to claim a pension at pension age based on their husband’s NI record, provided he was over state pension age.

In all these cases, once a state pension was being paid, it was unaffected by any subsequent change of marital status or living arrangements. However, if you are covered under the old system and are widowed post-retirement, you could be entitled to a boost in your basic state pension and potentially to inherit part of any earnings-related state pension already being paid.

If you are covered by the new state pension arrangements, your marital status is much less relevant, and changes in living arrangements therefore have less effect.

In essence, the new state pension introduced for those reaching pension age after 6 April 2016 is, with minor exceptions, based on the individual’s own NI contributions record, rather than that of a past or present spouse’.

The main exception to this is that where someone is receiving a state pension in excess of the full flat rate, part of the excess amount (known as the protected payment) can be inherited by a surviving widow or widower. This only applies to those who are married (or in a civil partnership), and not those who are simply living as a couple. These inheritance rights also apply to those who marry after reaching the state pension age.

With occupational pensions, the situation is messier and varies from scheme to scheme. In some ways, the benefits offered to partners by these schemes can be more generous than those afforded by the state scheme. This is because growing numbers of occupational pension schemes recognise long-term cohabiting partners as potential beneficiaries of a deceased scheme member’s pension.

For this reason, it is always worth making sure any pension scheme you are in has a completed, up-to-date nomination or ‘expression of wishes’ form on its records, so that it knows who you would like to benefit from your pension. Many of us will experience several changes in our relationships through the course of our lives. It is not uncommon for the person we may have named as a beneficiary when we joined our first pension scheme no longer to be the person we would like to benefit today.

Reasons to be careful

On the downside, some occupational pension schemes can be very strict if someone receiving a widow’s or widower’s pension remarries. Some schemes are based on the rigid understanding that a widow’s pension is paid because that individual has lost the financial support of their spouse, and also that pension payments cease if the recipient remarries. I have known widowed retired teachers who have remarried post-retirement and been shocked to receive a demand for repayment of thousands of pounds of ‘overpaid’ widow’s pension.

The golden rule is to find out from your scheme what its rules are before you make any big decisions. I would always advise getting this information in writing, as phone conversations can be misremembered or misunderstood.

Cohabitees face extra risks

Grey areas around marriage and cohabitation were highlighted in a court judgment in early 2018 relating to a local government pension.

The case was brought by a Ms Brewster, who had lived with her partner for more than 10 years and was engaged to be married. Sadly, her partner died and she was denied bene­fits because, although the scheme did provide a pension for unmarried surviving partners, the scheme required a nomination form to be completed by cohabitees, though not spouses. The court ruled that this was discriminatory, and Ms Brewster was awarded a pension, but the court case could have been avoided with sufficient planning.

Steve Webb is director of policy at Royal London.

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