Pension distribution and no will

natalieadams

This is my first post so hello.

I have a story, maybe dilemma, that I need to run past some interested people for feedback. I'm not expecting any answers but I would be interested in any comments.

My father was married to my mother, and they divorced over 20 years ago. My father was diagnosed with a terminal illness over 5 years ago, and his condition has deteriorated such that he currently has only a few days to live. He currently has a partner of 4 years.

He has numerous savings accounts, investments and a 'substantial' pension. During the times he was able to talk, without being hindered by his condition, he indicated that his savings and investments should be shared equally amongst his three children (around £15,000 plus a handful of shares and premium bonds) whilst his pension should go to his his current partner (to receive approximately half the current £600 per month pension).

My father took early retirement due to his health almost five years ago, and one of the stipulations of his pension is that children cannot receive the 'post-death' pension over 5 years since it was started.

He is not married to his partner, nor engaged. They are co-habiting, and his name is not on the mortgage on the house in which they live, nor any of the bills. They have a joint bank account.

His partner, aged in her early forties, therefore stands to gain a substantial amount of money over the rest of her life (the pension fund is currently valued at over £1.5 million).

I see that his main legacy is this pension, and he has always indicated that his children will be 'OK' when the time came.

He deteriorated early this week and no will had been written. The evening of his turn for the worse, his partner did her best to write down his wishes for finances and possessions. Fortunately, the next day, he slightly improved, so we obtained a will writing form for the Post Office and completed it, got him to sign it and had it witnessed. He seemed to understand that he was signing his will (plus several other documents that allowed the transfer of funds from one place to another).

In the will we stated for him how he would bequeath his possessions, savings and investments, and indicated what his intention for the pension was. I was aware of the pension intention for a number of months but didn't feel it appropriate to question whether that was what my dad intended, especially when he wanted to treat us fairly. There was never the right time to discuss this. Neither did I share this information with my sisters as I knew it would be upsetting for them. We discussed it the day after his deterioration.

I cannot help but feel that his partner, despite her wonderful nursing abilities over the past few years, is getting an unfair share of the finances that my father is leaving behind.

Does anyone think I am behaving irrationally, or have anything they would like to say? Have we made a mistake indicating his wishes, as we understood them, in the will?

EdInvestor

The distribution of death benefits from pensions is not determined by the will and nor do they end up in the deceased's estate.Rather, the pension scheme trustees will direct the money, according to the scheme rules,to his nominated beneficiary(s).The trustees have complete discretion to act as they see fit , but will normally follow the deceased's wishes unless he appears to have deliberately ignored dependants (which wouldn't include healthy adult children.)

dunstonh

Sorry to hear the circumstances.

Pensions do not take instructions from the Will. They are already in a form of trust and do not form part of the estate for your father.

Is this a personal pension annuity? I am guessing it is as you mention 5 years and that is a common guarantee term for standard annuity (although a strange decision for someone that is terminally ill)
Does the pension contain protected rights?

(the pension fund is currently valued at over £1.5 million).

although that bit suggests that the pension is not crystallised (commenced) or is in drawdown. However, drawdown wouldnt have a 5 year guarantee period.

Your questions and scenario are very specific and its hard to really discuss issues so specific. However, we really need to know more about the type of pension(s) and what its current state is. Given the values, I would have thought an IFA would be involved. So, you may wish to discuss your concerns with them.

EdInvestor

It seems very unlikely the pension fund is worth 1.5m if it only pays out 600 quid a month.More like 150,000 perhaps?

dunstonh

The figures and information dont add up. I wondered if it was in a phased drawdown (hence smaller income) but then the mention of 5 years suggests annuity. Although knowing you are terminally ill would normally mean you want to avoid an annuity unless value protect is factored in. Also, if it has crystallised and paying an income through an annuity then there is no pension fund (At least on that chunk of money).

natalieadams

Thanks for all your replies so far. They are very helpful.

I have managed to have a conversation with the pension provider and some of the figures I mention are from them. The 'over £1.5 million' is from a piece of paper I saw recently that said "Your current fund value is £1.6 million". Sadly, I did not see a date on this paperwork.

I had an idea that pension benefit distribution was not determined by a will, and the provider informed me that a board of trustees would be involved in final determination. The provider did said that they always take legal counsel and, an rare examples, they have turned to a will for final guidance.

The pension(s) are through an employer that my father worked for on three separate occasions, so there are actually three different pensions involved - 2 that pay around £250/month each and a third one that pays around £70/month. The provider explained that he had not seen a person with 3 before, which suggested to me that my dad's arrangement is unique!

I am not entire familiar with the pension terms you have been using, but I understand an annuity is where you use your pension at time of retirement to pay for (guarantee) a regular annual income until you die, suggesting no funds will be available to beneficiaries upon death. The pension provider did not suggest this had happened, as he spoke of a proportion of the pension (around half) would transfer to my dad's partner upon his death, payable until she dies.

Of the 2 larger pensions the provider informed me that they were coming up to five years since they were started (which I guess is the term drawdown you have been using).

I'm afraid I have no knowledge of the terms 'phased drawdown', 'protected rights' or 'protected value'.

It is great to hear you mention these terms as I can then seek clarification from the pension provider as to the situation specific to these details.

Thanks once again.

jem16

natalieadams wrote: »

The pension provider did not suggest this had happened, as he spoke of a proportion of the pension (around half) would transfer to my dad's partner upon his death, payable until she dies.

My father took early retirement due to his health almost five years ago, and one of the stipulations of his pension is that children cannot receive the 'post-death' pension over 5 years since it was started.

These statements to me sound more like it was a final salary occupational pension.

If the father had died in service the children, if in full-time education, would have received a pension. However after the pension is started this may not apply regardless of the length of time.

That and the fact that the spouse/partner would receive half of the pension after death.

dunstonh

I have managed to have a conversation with the pension provider and some of the figures I mention are from them. The 'over £1.5 million' is from a piece of paper I saw recently that said "Your current fund value is £1.6 million". Sadly, I did not see a date on this paperwork.

Was that in relation to the lifetime allowance rather than the actual value? The 1.6 million figure was the lifetime allowance amount a few years back.

I am not entire familiar with the pension terms you have been using, but I understand an annuity is where you use your pension at time of retirement to pay for (guarantee) a regular annual income until you die, suggesting no funds will be available to beneficiaries upon death. The pension provider did not suggest this had happened, as he spoke of a proportion of the pension (around half) would transfer to my dad's partner upon his death, payable until she dies.

An annuity would do that if you chose 50% spouse/partner option or if there was protected rights.

The pension(s) are through an employer that my father worked for on three separate occasions, so there are actually three different pensions involved - 2 that pay around £250/month each and a third one that pays around £70/month. The provider explained that he had not seen a person with 3 before, which suggested to me that my dad's arrangement is unique!

That could be quite normal if there was non-protected rights, and post 97 protected rights and pre 97 protected rights and different terms were put in place for each.

Of the 2 larger pensions the provider informed me that they were coming up to five years since they were started (which I guess is the term drawdown you have been using).

Drawdown isnt that. Its where you leave the pension invested but take an income from the pension rather than buy an annuity. An annuity gives certainty but the pension in drawdown is still invested and will fluctuate with investment returns. However, on death, the whole pot can be moved to a spouse/partner and continue without penalty or paid out as a lump sum subject to a tax charge. Someone who is terminally ill will often favour drawdown as annuities often take much longer to break even than the time they are likely to have. Although annuities do allow protection to be factored into them. Such as value protect which will pay the difference of the fund value minus the income paid and a tax charge.

These statements to me sound more like it was a final salary occupational pension.

It could be but as you see from what I have written, it could also describe annuity purchase still.

I think the easiest way to determine which it is is to find out who pays the pension (not 100% foolproof as some money purchase schemes can provide an in house annuity). Natalie, who pays the pension? Is it from an insurance company or is it from the employers pension scheme?

jem16

dunstonh wrote: »

It could be but as you see from what I have written, it could also describe annuity purchase still.

Yes I see that too.

Natalie, who pays the pension? Is it from an insurance company or is it from the employers pension scheme?

Could still be ambiguous with that too. My pension from my husband's final salary pension was originally paid into my bank account as Aon Ltd. Recently it has changed to say Motorola.

natalieadams

dunstonh wrote: »

I think the easiest way to determine which it is is to find out who pays the pension (not 100% foolproof as some money purchase schemes can provide an in house annuity). Natalie, who pays the pension? Is it from an insurance company or is it from the employers pension scheme?

Thanks again Dunstonh. In answer to your question, my father worked for Dairy Crest, and the payments appear as 'Dairy Crest...' on his bank statement. I actually spoke to a company called 'Resource' to talk about it though. I couldn't tell you if they were an insurance company.

Sadly, I have not seen, nor been given the opportunity to read any of my father's pension literature (apart from the one piece of paper I mention above), as I'm sure I could answer your questions more accurately.

jem16

natalieadams wrote: »

Thanks again Dunstonh. In answer to your question, my father worked for Dairy Crest, and the payments appear as 'Dairy Crest...' on his bank statement. I actually spoke to a company called 'Resource' to talk about it though. I couldn't tell you if they were an insurance company.

Dairy Crest did indeed have a final salary pension which appeared to be closing to new members in 2006.
http://www.personneltoday.com/articles/2006/03/13/34339/closure-of-dairy-crest-pension-scheme-angers-unions.html


I have no idea if it ever did close but it appears that your father's pension is a final salary pension. As Ed said earlier the pension trustees will decide who is paid the spouse/partner's pension and in most cases will pay it to the nominated beneficiary.