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    • Moneyer
    • By Moneyer 16th Oct 16, 10:39 AM
    • 106Posts
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    Moneyer
    Pension for wife after my death?
    • #1
    • 16th Oct 16, 10:39 AM
    Pension for wife after my death? 16th Oct 16 at 10:39 AM
    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?
Page 1
    • zagfles
    • By zagfles 16th Oct 16, 10:52 AM
    • 11,109 Posts
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    zagfles
    • #2
    • 16th Oct 16, 10:52 AM
    • #2
    • 16th Oct 16, 10:52 AM
    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.
    Last edited by zagfles; 16-10-2016 at 11:20 AM.
    • WillowCat
    • By WillowCat 16th Oct 16, 11:19 AM
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    WillowCat
    • #3
    • 16th Oct 16, 11:19 AM
    • #3
    • 16th Oct 16, 11:19 AM
    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
    • By Linton 16th Oct 16, 11:29 AM
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    Linton
    • #4
    • 16th Oct 16, 11:29 AM
    • #4
    • 16th Oct 16, 11:29 AM
    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|?
    Last edited by Linton; 16-10-2016 at 11:32 AM.
    • xylophone
    • By xylophone 16th Oct 16, 11:49 AM
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    xylophone
    • #5
    • 16th Oct 16, 11:49 AM
    • #5
    • 16th Oct 16, 11:49 AM
    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
    • By Moneyer 16th Oct 16, 12:50 PM
    • 106 Posts
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    Moneyer
    • #6
    • 16th Oct 16, 12:50 PM
    • #6
    • 16th Oct 16, 12:50 PM
    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
    • By xylophone 16th Oct 16, 1:07 PM
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    xylophone
    • #7
    • 16th Oct 16, 1:07 PM
    • #7
    • 16th Oct 16, 1:07 PM
    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
    • By badmemory 16th Oct 16, 1:41 PM
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    badmemory
    • #8
    • 16th Oct 16, 1:41 PM
    • #8
    • 16th Oct 16, 1:41 PM
    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
    • By Linton 16th Oct 16, 2:47 PM
    • 6,946 Posts
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    Linton
    • #9
    • 16th Oct 16, 2:47 PM
    • #9
    • 16th Oct 16, 2:47 PM
    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.
    Originally posted by badmemory
    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
    • By Moneyer 16th Oct 16, 3:13 PM
    • 106 Posts
    • 69 Thanks
    Moneyer
    You both need a new state pension statement.
    Have you considered increasing your own pension contributions so as to reduce your adjusted net income?
    Originally posted by xylophone
    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
    • By Moneyer 16th Oct 16, 3:24 PM
    • 106 Posts
    • 69 Thanks
    Moneyer
    Firstly are you sure the DB spouse pension is not index linked?
    Originally posted by zagfles
    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!
    • xylophone
    • By xylophone 16th Oct 16, 5:07 PM
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    xylophone
    http://www.salford.ac.uk/__data/assets/pdf_file/0006/734046/USS-Member-Guide-2016.pdf


    According to the 2016 USS Member Guide page 14 Increases

    "These increases are applied to:
    § The benefits from any past membership you
    may have built up until 31 March 2016;
    § The benefits you build up in the USS Retirement
    Income Builder;
    § The value of pension benefits once in payment;

    and
    § The value of your benefits if you leave the
    scheme and have a deferred pension.

    USS pension increases are reviewed each year and
    are linked to increases in official pensions. Official
    pensions increases are those paid to retired public
    sector employees such as teachers, civil servants
    or NHS employees. Currently, the annual increases
    to official pensions, usually effective from each April,
    are linked to changes in the consumer price index,
    which is a measure of inflation over the 12 months
    up to each September.
    USS will match increases in official pensions for the
    first 5%. If official pensions increase by more than
    5%, then USS will pay half of the difference up to
    a maximum increase of 10%. So, if official pensions
    increased by 15% or more, USS increases would
    be 10% in that year.
    Your pension will not be reduced during periods
    of negative inflation."
    Additionally, the USS pension increases are used
    to increase the salary threshold."

    The amount of the widow's pension will be half of (your pension at commencement plus the increases paid after commencement up to date of death)
    Page 19
    "Death after retirement
    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. This pension refers only to the USS
    Retirement Income Builder and will be the pension
    worked out each year based on your salary subject
    to the salary threshold. Any remaining funds
    under the USS Investment Builder would provide
    additional benefits."

    This widow's pension is still a USS pension and therefore increases in payment as on P14?

    You should check with the administrator.
    • Triumph13
    • By Triumph13 16th Oct 16, 5:34 PM
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    Triumph13
    I believe USS AVCs can still be lumped together with the DB benefits so that you can take 25% of the combined value as tax free cash from the AVC? In that case, and subject to any LTA considerations, my starting point would be:
    1. Pay AVC's to claw back some or all of your child benefit.
    2. Pay voluntary NICs for Mrs Moneyer once Moneyer Minor is too old for her to get them automatically so that she gets full state pension
    When you retire, if the DB is already giving you plenty to live on, then the funds from 1 can be used to:
    • continue paying her voluntary NICS until she reaches 35 years
    • pay / continue paying £2,880 a year into a pension for her (if this rule is still in existence)
    • defer her state pension until it plus the inherited DB would give her a comfortable income.
    • GunJack
    • By GunJack 16th Oct 16, 6:32 PM
    • 9,285 Posts
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    GunJack
    I don't wish to sound harsh, but if she's educated to post-grad level, why won't she be seeking "proper" work, rather than voluntary? That seems like a waste of education and earning potential, not to mention building up NI/pension of her own
    ......Gettin' There, Wherever There is......
    • kidmugsy
    • By kidmugsy 16th Oct 16, 9:39 PM
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    kidmugsy
    Does USS still offer "allocation" whereby you can choose to sacrifice some of your pension so that her widow's pension is bigger? It may depend on the different sections of the scheme; is part of your pension going to be from the Final Salary section?
    • atush
    • By atush 16th Oct 16, 9:49 PM
    • 15,303 Posts
    • 9,176 Thanks
    atush
    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.
    Originally posted by Moneyer

    So, what you need to do is many fold.

    First answer questions. Why do you think she will not get a SP of her own? How many years has she worked and paid nics? Will she get credit for the 3 extra years from 16-18? Possibly. She needs to get a statement of contributions.


    Second, why voluntary work over paid work? If you are worried about her financial situation, you should discuss her working for a salary over for free.

    3rd, have you considered paying into a private pension for her? She can pay in up to 2880 per year, which the govt gives TR on (even though she doesnt pay tax) to make it 3600. Do that for a few decades, and she has a decent pension pot. Even if she doesnt go back to work.
  • jamesd
    she won't reach 10 years of contributions before the youngest child turns 12
    Originally posted by Moneyer
    That implies that she probably has some past years that she can buy and she probably should do that.

    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!
    Originally posted by Moneyer
    The state pension wins easily for her. Even with that level of tax relief you're not likely to get circa £4 of income a week for life from state pension age for a one-off gross contribution of perhaps £800 plus growth on that. For you the pension contributions are very attractive but still, getting to her old ones and getting them bought before the buying time limit expires matters.
    • Moneyer
    • By Moneyer 17th Oct 16, 8:58 AM
    • 106 Posts
    • 69 Thanks
    Moneyer
    I don't wish to sound harsh, but if she's educated to post-grad level, why won't she be seeking "proper" work, rather than voluntary? That seems like a waste of education and earning potential, not to mention building up NI/pension of her own
    Originally posted by GunJack
    Entirely fair question, and on this forum was always going to be asked by somebody. ;-)

    But when it comes to earning potential, I'm lucky enough to have a secure job I love which pays enough to support the lifestyle we want (which is quite frugal), provide for our futures and get the kids off to a decent start in life. Accumulating more money is less important to us than enjoying life and having a positive impact on the world.

    Getting back into paid work would be a hard slog (few employers are interested in people with high-level qualifications from 15 years ago and no recent workplace experience) and she'd probably end up settling for something she didn't really enjoy and that didn't use her full skill set anyway. Voluntary work allows her to do what she enjoys most and believes make a positive difference, and also take off as much time as she wants to support the rest of the family.

    As for a waste of education, there's plenty of highly skilled work in the voluntary sector (and highly skilled people choosing to do it). I'm afraid we also cling to the old-fashioned view that education has a deeper purpose and benefit than just as training for employment. ;-)
    • atush
    • By atush 17th Oct 16, 10:30 AM
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    atush
    But when it comes to earning potential, I'm lucky enough to have a secure job I love which pays enough to support the lifestyle we want (which is quite frugal), provide for our futures and get the kids off to a decent start in life. Accumulating more money is less important to us than enjoying life and having a positive impact on the world.
    I guess the problem is, you are not providing for her future to the extent that you would like to. So your whole approach, as lovely a s it sounds, needs a bit of a rethink.

    And many charities and voluntary organisations do have paid positions. She could at least look.
    • Moneyer
    • By Moneyer 17th Oct 16, 11:29 AM
    • 106 Posts
    • 69 Thanks
    Moneyer
    I guess the problem is, you are not providing for her future to the extent that you would like to. So your whole approach, as lovely a s it sounds, needs a bit of a rethink.
    Originally posted by atush
    I take the point, but when I say my income is sufficient, I mean there's enough headroom in it that I can provide properly for her future. The problem is not lack of resource: it is just that the structure of my current pension arrangements doesn't adequately cover one scenario (namely me predeceasing her by a significant time), so how to efficiently invest a bit more surplus income (which we can easily afford) to insure against this case.
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