A miss-sale in the making, (or why spouses need to pay attention to pension conversations!)

A miss-sale in the making, (or why spouses need to pay attention to pension conversations!)

Imagine for a moment that you are an unsuspecting IFA who arranged for a married man to receive a single life annuity when he came to retirement. Ten years later, the annuitant dies and the wife visits you and says,

“Where’s my pension?”

“You don’t get one. Your husband took a single life pension to maximise the income that came in during his lifetime”.

The surviving spouse then takes serious umbrage and takes her case to law; who will pay for a spouse’s pension if she wins?

Family finances are a muddle and full of assumptions made by the State, husband, wife, Uncle Tom Cobleigh and all. Pension Freedom has not made it better; there is no automatic mechanism to ensure that there is anything left for a spouse on the demise of the pension fund owner. A spouse needs to rely on nursery goodwill or be part of the pension conversations to ensure that they are secure in later retirement.

Whose pension is it anyway? Personal Pensions are assumed to be personal, (the clue is in the name!), but here the spouse assumes it has to be shared between the married couple. Pension law does not make automatic provision for anyone other than the actual pension holder, therefore unlike normal marital property rights, a spouse has no automatic legal right to any portion of their spouses’ personal pension.

Now that protected rights have been abolished there is no apparent right to any spouses’ pension, so I believe that spouses need to understand what is going on at retirement and the consequences of any decisions.

Many wives assume that their husband will act in their best interest, so take little or no interest in the retirement process. For their own sakes and for that of the next potentially trapped IFA, everyone needs to understand some basics.

  1. The State pension is not huge and will be quite difficult to live on. Almost everyone will get one, providing they have made some National Insurance Contributions. A full state pension will need 35 or more years of contributions, so check and top up if necessary.
  2. A personal pension is assumed to be personal and unless someone screams, it will be used to maximise the income of the person who owns it.
  3. If you don’t have a pension in your own name you won’t automatically get one. A single life annuity is the default option, so if you NEED a spouses’ pension you must persuade your spouse to make provision for you.
  4. Remember, if it is not freely offered, the only way to get a legally enforceable share of a spouses’ pension is as part of a divorce settlement or as part of an estate settlement following a death, as a provision for someone who might reasonably expect it. Both of these need a Court order.
  5. Most defined benefit pensions include a spouse’s pension, but there is no automatic provision if the pension is transferred to a Flexi-Drawdown plan. Transferring away from a final salary scheme can seriously undermine the pension provisions of a spouse, especially if the plan owner plans to withdraw all the fund in their lifetime.
  6. If a nervous IFA asks you to sign a disclaimer acknowledging that your husband has a single life annuity and this will leave you destitute, don’t sign it and seek legal advice; (remembering point 4 above!)

If you would like to know more about how we can help you plan and realise your financial goals then contact us at info@martin-redmanpartners.co.uk or call us on 01223 792 196.

The information contained is for guidance only and does not constitute financial advice. It is based on our understanding of UK legislation, whether proposed or in force, and market practice at the time of writing. Levels, bases and reliefs from taxation may be subject to change. Accordingly, no responsibility can be assumed by Martin-Redman Partners its officers or employees, for any loss in connection with the content hereof and any such action or inaction.