Pension for wife after my death?

I'm 40ish, married and lucky enough to be in a DB scheme which together with the state pension should hopefully provide a decent index-linked income for both of us. However, if I die before my wife (likely as she's younger) she'll receive only half my pension at the time, and that not index-linked, and she's also unlikely to qualify for a state pension.

For tax reasons now would be a good time for me to make some extra pension contributions, and my priority is to make sure she is better provided for after my death, esp. if she outlives me by long enough for inflation to eat away the spouse part of my DB pension.

Any suggestions for the most efficient and reliable way to achieve this?
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  • zagfles
    zagfles Posts: 20,277
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    edited 16 October 2016 at 10:20AM
    Firstly are you sure the DB spouse pension is not index linked? This is unusual and I thought illegal (but I could be wrong), there are rules about how defined benefit pensions are indexed (post 1997 service, CPI capped at 5% or 2.5%) and as far as I'm aware they apply to spouses benefits too. Maybe someone can correct me if I'm wrong.

    Secondly are you sure she won't get any state pension? You get NI credits towards state pension for nearly all the reasons for being out of work, such as caring for young children or elderly relatives, seeking work (even if not entitled to JSA) and disability.
  • The most cost effective pension provision would be ensuring that your wife is entitled to state pension. Get her to get a state pension forecast, then look at how many years you need to purchase. If she's in her 30's she has plenty of years in which she could be either working or buying voluntary contributions. Do you have children? If so and she is claiming child benefit she will be already building up an entitlement.
  • Linton
    Linton Posts: 17,064
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    edited 16 October 2016 at 10:32AM
    Is she working? Is she a tax payer?

    If you are looking for ways in which you can gain the tax relief whilst your wife eventually gets the benefit after your demise....

    You can set up and pay into a SIPP or Private Pension in your name and you get the tax relief now. If you die before the age of 75 she can get the whole amount remaining as a tax free annuity, drawdown or lump sum. If you die at or after 75 then the money will be taxed as her income.

    Is there any danger that doing this would lead you to exceeding your lifetime allowance|?
  • xylophone
    xylophone Posts: 44,140
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    if I die before my wife (likely as she's younger) she'll receive only half my pension at the time, and that not index-linked, and she's also unlikely to qualify for a state pension.

    It specifically says in the rules of your scheme that the widow's pension is not index linked?

    What is the problem with a state pension for your wife?
  • Moneyer
    Moneyer Posts: 114
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    Thanks for all the helpful replies! My wife is a full-time mum and non- taxpayer so should currently be getting NI credits, but very few so far due to studying (to postgrad level) and time spent overseas. If I have calculated right (we're trying to get a proper forecast but having having some technical problems) she won't reach 10 years of contributions before the youngest child turns 12, and she intends to do voluntary rather than paid work as they get older.

    Buying some years of contributions for her sounds like a good plan, but I wasn't sure how the benefits compare with paying into a personal pension: I have an effective marginal tax rate of about 64% due to high-income child benefit charge, so anything that can be done from my gross income is obviously attractive!
  • xylophone
    xylophone Posts: 44,140
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    You both need a new state pension statement.

    Presumably your wife is registered for CB - when she no longer receives credits she can make voluntary contributions for the number of years required.

    Have you considered increasing your own pension contributions so as to reduce your adjusted net income?

    https://www.unbiased.co.uk/news/how-to-avoid-the-child-benefit-tax-charge/1966

    Even though your wife has no relevant income, you can give her the cash to enable her to contribute up to £2880 to a pension and receive tax relief of £720.

    http://www.hl.co.uk/pensions/sipp/how-much-can-i-invest

    https://www.cavendishonline.co.uk/pensions/stakeholder-and-personal-pensions/
  • badmemory
    badmemory Posts: 7,631
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    Just a reminder that any income your wife has in retirement (or indeed now) will have her personal allowance so in current terms it will be far more financially beneficial as couple for her to have £11000 income rather than none. Which would make a pension in her own name a good idea.
  • Linton
    Linton Posts: 17,064
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    badmemory wrote: »
    Just a reminder that any income your wife has in retirement (or indeed now) will have her personal allowance so in current terms it will be far more financially beneficial as couple for her to have £11000 income rather than none. Which would make a pension in her own name a good idea.

    But as a non tax-payer she can only put £2880 net/year into her pension to get a £720 tax rebate. £11000/year income would require a pot of say £275K - more than 75 years. There is no way to use tax-relieved money to provide the wife with a large income in her own name to benefit from her allowance, other than my SIPP/PP proposal which sadly requires the OP to die. And if you arent going to get tax relief you are better off with the flexibility of an S&S ISA.
  • Moneyer
    Moneyer Posts: 114
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    xylophone wrote: »
    You both need a new state pension statement.
    Have you considered increasing your own pension contributions so as to reduce your adjusted net income?

    Yes, that's one of the two main options under consideration. The point is that the objective is not to boost pension income in my lifetime (which should be fine anyway) but to boost income between my death and hers: I want to ensure her financial security even if she survives me by 30 years or more. So the questions are (i) what kind of pension fund I should contribute to myself in order to boost income after my death but before hers and (ii) whether doing this is better value than taking the tax hit now and using the net income to buy her NI stamps to maximise her state pension.
  • Moneyer
    Moneyer Posts: 114
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    zagfles wrote: »
    Firstly are you sure the DB spouse pension is not index linked?

    An interesting question: I had assumed it was and discovering that it doesn't seem to be is what prompted me to worry about this!

    The scheme in question is USS, and the wording referring to death after retirement is "The scheme will pay a pension to your spouse or partner of half the pension you were entitled to as standard when you retired, plus increases to date of your death" (my emphasis). "Increases" is USS-speak for the inflationary adjustment, so this seems to imply that they happen only up until I die. This contrasts with the wording for death in service, in which case the resulting spouse pension is explicitly said to be subject to increases.

    But of course my interpretation might be wrong - if anybody can find a clearer statement of whether or not the spouse pension (assuming death after retirement) is index-linked, I'll be very grateful!
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