Stand Alone Widow's Pension

kidmugsy

Afterthought: there's a product (common in the US but not here) that might appeal, namely a "deferred annuity". Maybe a specialist adviser could help you buy one. You buy the product "now" and the annuity starts paying out at age 75 or 80 or whatever. Obviously it's much cheaper than an immediate annuity. Or, again, you could just buy your wife a "purchased life annuity" anyway, but it would be mighty expensive for someone of sixty.

mgdavid

Ageing_Disgracefully wrote: »

......If I am granted the ill health retirement that I didn't want, then not only will I receive an enhancement of service increasing my own pension, but the option of allocating part of my pension to benefit Mrs AD will be removed under the scheme rules.

So there's a pro and a con. Surely you need the actual numbers in order to evaluate which is better?

Ageing_Disgracefully

mgdavid wrote: »

So there's a pro and a con. Surely you need the actual numbers in order to evaluate which is better?

OK. To put some figures on it.

If I were to take an actuarially reduced pension now I would receive around £15K pa and a lump sum of £46K.

My plan had been to allocate around £500 of this pension which would provide an additional £3.5K widow’s pension in the event of predeceasing my wife (in addition to the standard 50% or £7.5K). Total widow’s pension would be £11K.

With ill health retirement my service would be enhanced (but restricted to the 45 year maximum) and I would receive a pension of around £18K with a lump sum of £51K. Widow’s pension would be £9K and I am unable to allocate any of my pension to increase this (I fully understand the reasoning for this). By taking the maximum lump sum available I could exchange £3.5K of my own pension for an additional £42K lump sum.This would bring my own income back down to the £14.5K (after allocation) that I would have received as an actuarially reduced pension.I would have £47K greater lump sum to generate extra income for my wife if I pop my clogs before her.

My wife can take an occupational pension of £5K next year. We will both be entitled to state pension at 66 (I in 2022 and my wife a year earlier). Mine will be the basic state pension of just under £6K. As my wife has been lower paid and has not always been in contracted out employment she is likely to receive around £6.5K. We have savings which will be used to top up our net income until our state pensions come into payment.As a couple we would have net income of over £2500 monthly with which we could live very comfortably if not extravagantly.

My gross income in retirement if my wife passes away before me would be £23K (£14.5 occupational pension + £6K state pension + £2.5K widower’s pension) giving net income of just over £1700 per month.

If I went first Mrs AD would have gross income of £20.5K (£5K occ pen + £6.5K state pen + £9K widow’s pen)giving net income of around £1540 per month. Whilst I am sure that she could more than just get by on that I was trying to find a way to even out our income by investing some or all of the additional £47K lump sum.

If either of us dies before state pension age then the survivor would continue to draw on the savings that we are using to top up our income in those intervening years, so we would not need to generate any additional income until at least that point.

If I were to buy an RPI linked annuity of £5K per year from age 66 it would cost around £155K.If I were to increase the cover to provide a £2500 annuity for my wife should I predecease her the this would increase the initial purchase cost to around £170K, so the cost of that widow’s pension part of the annuity is around £15K.

I had hoped that there would be a product out there which would provide only that £2500 widow’s annuity (and not one for myself at all) for around that £15K cost. With average life expectancies and my wife already being a year older than me, then on average such a policy would only pay out around £5K. It seems, however, that there is no such product.

kidmugsy

I'm a bit baffled as to why you are focussing so much on pensions. Why not just arrange things so that you leave your widow plenty of capital so that she can invest it for income at the time? You probably have years yet in which to fill her ISAs and personal pensions.

mgdavid

the numbers are all very similar; I don't understand why you seem mildly obsessed with arranging *precisely* the same pensions each - a difference of £160 a month is (to me) hardly a top priority. I would be concentrating harder on planning and enjoying the time as a couple until first death.

kangoora

You are aware that the state widow's pension (bereavement allowance) only pays out for 52 weeks?
https://www.gov.uk/bereavement-allowance/overview

Ageing_Disgracefully

mgdavid wrote: »

the numbers are all very similar; I don't understand why you seem mildly obsessed with arranging *precisely* the same pensions each - a difference of £160 a month is (to me) hardly a top priority. I would be concentrating harder on planning and enjoying the time as a couple until first death.

No obsession. I'm just surprised that the product isn't out there. I was hoping that what would effectively be a cost effective insurance product would allow us to spend more of our capital on enjoying our time (in the manner of my user name).


Thanks to all who have replied.

atush

I personally, instead of buying a widows pension, would be filling a PP for her while she is still working, and after wards at 2880/3600 per year. Eventually this will provide a pot to give her the extra 2500pa you think she needs, and she can draw it down accordingly.

jamesd

Ageing_Disgracefully wrote: »

By taking the maximum lump sum available I could exchange £3.5K of my own pension for an additional £42K lump sum.

Well, that option is easy to eliminate. You get 8.3% inflation-linked on the 42k if you leave it in the pension. It's a typical poor public sector commutation rate of 12:1.

What you should do with that money is leave it in the pension and if you want to provide more for your wife buy term life insurance that will pay out to her while you invest the rest of the extra £3.5k so she can later get an income from it. Or maybe 2k and keep 1k for lifestyle improvement.

What happens if you do not take the 51k but instead say you want that as income? Do you get the same 8.3% inflation-linked on it as well? Same approach to that - take the money and smile broadly at the excellent income level on the money while investing for her future.

What about your other savings and investments? Your wife is 59. I assume that she is currently working. It may be sensible to make large personal pension contributions for her now to exploit the tax relief. As she is at least 55 she can get a 25% lump sum and from 6 April 2015 unlimited drawing on the rest as taxable income. Since she may have no taxable income for a few years this could be very tax-efficient: at least 20% tax relief on the way in and none on the way out if she gets it all out before her state pension starts and uses up some of her personal allowance. This is probably your most effective second line action after taking the 8.3% boost to your income.

If the savings level is sufficient you may also find it useful to us a personal pension with the part of your earned income that isn't used this year for the work pension. Same idea as your wife, getting the tax relief then taking the money out later. In your case it'd be the 25% tax free lump sum only that provides the ta gain, assuming that you're paying 20% income tax now and later.

This sort of approach ends up doing what you're after but does it more gradually, with the life insurance providing short term protection just in case you die unusually early. It's simply more efficient and likely to leave you both better off now and in the future. If desired you can leave most of the investing for her until after your state pension(s) start, to help to have an even income now and then.

I'm assuming that nothing in your medical situation has lowered your life expectancy significantly. If you have any reason to believe that your life expectancy is significantly below normal you should mention that because it may change the answers you get.