Pension - is there a way of sharing with spouse?

osian

My husband (36) has some changes to his pension and has to decide on a % amount to pay into his company pension. It's with standard life.

His employers will offer 8% on top of what he pays in. He is thinking of making the overall sum 30% of his salary (22%/8% split).

Not sure about this compared to paying in a smaller amount into a pension and saving more into ISA's/savings accounts, if something happens then everything will pass onto the remaining spouse for example.

How does this work with a pension? If something happens to my husband, what happens to the pension fund. Is there a 'standard' precedure for this sort of thing. Is there something we can sign/ arrange before putting more money into this fund.

Sorry for the stupid question, but we don't want to lose all the money if the worst did happen.

Linton

If your husband dies before taking his pension then the money would be available to his spouse for a pension - in theory this is at the trustees discretion but in practice they do what the customer wants. There should be a form to fill in giving the beneficiary when the pension is started.

When your husband retires he can either..

1) Take an annuity. Your rights would be defined at that time - typically 50% spouse pension after death of pensioner, though the % can be anything from 0 to 100.

2) Go into drawdown. After the pensioners death the money remaining is passed to the spouse for use as a pension.

jem16

osian wrote: »

Not sure about this compared to paying in a smaller amount into a pension and saving more into ISA's/savings accounts, if something happens then everything will pass onto the remaining spouse for example.

What's your husband's tax status? If a higher rate taxpayer then it makes sense to use the pension. If he's a basic rate taxpayer it might make sense to utilise less in the pension and some in S&S ISAs.

osian

Thank you linton for clearing up that for us. So I guess it makes sense to pay a decent percentage into the pension if it's affordable. I think he is able to change the % amount each year, so we could change it according to circumstances I guess.

I've just googled drawdown, is it something like just drawing money from a big cash savings pot as and when you need it? Is it that simple? I'm guessing if you had enough to live on with the interest/ fund % growth each year you need not dip into the pot so much, or am I wrong. Does the remainder get passed onto children or is there a cut off point at surviving spouse?

Thanks.

osian

Jem - thanks, that's good to consider too.

Linton

osian wrote: »

Thank you linton for clearing up that for us. So I guess it makes sense to pay a decent percentage into the pension if it's affordable. I think he is able to change the % amount each year, so we could change it according to circumstances I guess.

I've just googled drawdown, is it something like just drawing money from a big cash savings pot as and when you need it? Is it that simple? I'm guessing if you had enough to live on with the interest/ fund % growth each year you need not dip into the pot so much, or am I wrong. Does the remainder get passed onto children or is there a cut off point at surviving spouse?

Thanks.

Basically it is as you described, though there are limitations on how much you can take out - the government dont want you emptying the pot and then going on to benefits.

After the drawdown has started, on the death of the pensioner the remainder can be passed onto children tax free if they are still dependents, but otherwise there is a 55% tax with the money being passed as a lump sum. It does not form part of the estate for inheritance tax.

atush

What other savings and investments do you have? Do you have a mtg (and at what rate)? Do you have children (or are they planned)?

Normally, I am all for paying into a pension as much as you can afford.

But After you hve 6 months or more spending needs in cash, and other investments as well. As you pointed out, these other investments are more flexible and can be used to upgrade your house, start a family, but a car, pay for holidays, university etc.

So if you don't have a cash buffer and ISAs already, I'd be inclined to reduce overall pension to 20% and save the extra 10% into ISAs until you do. Then whack up the contribs again.

osian

Thanks Linton for clearing up my questions. It's good to know that a drawdown can be passed onto spouse/ children in some form. Hopefully before the time my husband retires I will have paid enough into my own pension again but it's something that worries me in the meantime whilst I am taking a career break with family and we thought it would be best to check all the bases.

Thanks atush for all those things to consider. Looking at the list, it does make more sense to pay more into the pension at this point as all those things are covered and we should still be able to save into ISA's/ savings etc. Have one child (3) and another due in the autumn.

Just not at all savvy with them really and was a bit wary if something were to happen to my husband that the money would be gone forever.

xylophone

A gloomy thought I know but what provision do you have in the event of your husband's death as he appears to be the sole breadwinner?
Is there insurance in place to pay off any mortgage?
Does his pension give some sort of death in service benefit?
Is there a widow's pension? Is there any provision for the children?

osian

Thanks Xylophone,

I think we'd be ok financially if the worst did happen. We've both got life insurance which pays out a sum just under his monthly take home wage each month until our daughter is 21. This is payable if either me or my husband die/ or both. We don't have a mortgage anymore as we paid it off 4 years ago, but we'd get a lump sum of the amount that it was insured for. Both of us are insured for this. He also gets a death in service of 3 x annual salary with his pension. We've also got some savings which are just over 2x his annual gross salary. I'm probably a bit more worried about this stuff than most as my father died suddenly at 49 and my mother was lucky that some things were in place as they hadn't really thought all that through.

I'm hoping to return to work when the new baby starts school so hopefully this won't be an issue for long (5 years max), but I'd like to cover all bases.