Protecting against impact of bereavement on surviving partner's pension income?

JohnWinder

'protect against... bereavement'? - Bereavement is a period of mourning or or state of intense grief, especially following the death of a loved one.

What did I miss?

NottinghamKnight

Mickey666 said:

That's a disadvantage of a DB pension (though a 2/3rd spouse pension would help significantly).
The problem with pension planning is not knowing when you'll die.  For example a DB pension is great if you're Captain Tom but no so great if you checkout at 80, where the chances are you'd have been better off transferring out to a drawdown pension and leaving a lump sum for your partner when you go.  Check out under 75 and that remaining pension pot is inherited tax-free, so that's a potential 40% increase in value straight away!
It's ironic given the immense uncertainties in retirement that an inflexible DB pension is still generally considered to be the gold standard.

Well there's one obvious solution in terms of date of death though even that could be thwarted.
An inflexible DB pension is the go,d standard because no one outside the public sector are offering them any more because they are too expensive to fund, gross contribution rates of 30%+ of salary far exceed any typical dcpension provision by employers.  And we then get the desperate grasping for inflated cetv figures that make up many threads on these boards, so yes db is pretty much the gold standard. 

zagfles

Is there really a gap? I'd have thought 75% would be easily enough. Half the spending on stuff like food, nights out, holidays, clothes etc, less on council tax, cars, possibily moving to a smaller place/with family/friends/granny annex. And of course the possibility of getting together with another widow/er in the same position and having 150% between the two of you - so being better off!

Mickey666

NottinghamKnight said:

Mickey666 said:

That's a disadvantage of a DB pension (though a 2/3rd spouse pension would help significantly).
The problem with pension planning is not knowing when you'll die.  For example a DB pension is great if you're Captain Tom but no so great if you checkout at 80, where the chances are you'd have been better off transferring out to a drawdown pension and leaving a lump sum for your partner when you go.  Check out under 75 and that remaining pension pot is inherited tax-free, so that's a potential 40% increase in value straight away!
It's ironic given the immense uncertainties in retirement that an inflexible DB pension is still generally considered to be the gold standard.

Well there's one obvious solution in terms of date of death though even that could be thwarted.
An inflexible DB pension is the go,d standard because no one outside the public sector are offering them any more because they are too expensive to fund, gross contribution rates of 30%+ of salary far exceed any typical dcpension provision by employers.  And we then get the desperate grasping for inflated cetv figures that make up many threads on these boards, so yes db is pretty much the gold standard. 

I understand that, but my point was even though it's the 'gold standard' it won't be the best solution for many people, ie those who die before 80-ish.  I don't know the actuarial figures but I think the median age is of death in the UK is 81.  Assuming a standard distribution (which might well be wrong) then for all those who live (say) 20 years beyond that age, a roughly equal number will will die in the 20 years below that age.  (I suspect that's not quite right but can't find the actual figures)  My point is that there will certainly be many, many people who die before 81 and for those people a DB pension is probably not as good as transferring into a drawdown pension.  It might be marginal at 80, less so at 75, very likely at 70 and almost certainly at SRA.
It's one thing to consider pension planning 'on average' but in practice 'other people' are irrelevant because ultimately pension planning is a personal thing.  If, say, you are given five years to live at age 60 what would you do with your 'gold standard' DB pension?  I'm pretty sure I'd take the transfer value!

zagfles

Mickey666 said:

NottinghamKnight said:

Mickey666 said:

That's a disadvantage of a DB pension (though a 2/3rd spouse pension would help significantly).
The problem with pension planning is not knowing when you'll die.  For example a DB pension is great if you're Captain Tom but no so great if you checkout at 80, where the chances are you'd have been better off transferring out to a drawdown pension and leaving a lump sum for your partner when you go.  Check out under 75 and that remaining pension pot is inherited tax-free, so that's a potential 40% increase in value straight away!
It's ironic given the immense uncertainties in retirement that an inflexible DB pension is still generally considered to be the gold standard.

Well there's one obvious solution in terms of date of death though even that could be thwarted.
An inflexible DB pension is the go,d standard because no one outside the public sector are offering them any more because they are too expensive to fund, gross contribution rates of 30%+ of salary far exceed any typical dcpension provision by employers.  And we then get the desperate grasping for inflated cetv figures that make up many threads on these boards, so yes db is pretty much the gold standard. 

I understand that, but my point was even though it's the 'gold standard' it won't be the best solution for many people, ie those who die before 80-ish.  I don't know the actuarial figures but I think the median age is of death in the UK is 81.  Assuming a standard distribution (which might well be wrong) then for all those who live (say) 20 years beyond that age, a roughly equal number will will die in the 20 years below that age.  (I suspect that's not quite right but can't find the actual figures)  My point is that there will certainly be many, many people who die before 81 and for those people a DB pension is probably not as good as transferring into a drawdown pension.  It might be marginal at 80, less so at 75, very likely at 70 and almost certainly at SRA.
It's one thing to consider pension planning 'on average' but in practice 'other people' are irrelevant because ultimately pension planning is a personal thing.  If, say, you are given five years to live at age 60 what would you do with your 'gold standard' DB pension?  I'm pretty sure I'd take the transfer value!

This supposed 'gold standard' probably refers to the value of the pension, not the style (ie DB vs DC). DB are mainly better because they're worth more, because more goes in, not because of the style of the payout.

Mickey666

zagfles said:

Mickey666 said:

NottinghamKnight said:

Mickey666 said:

That's a disadvantage of a DB pension (though a 2/3rd spouse pension would help significantly).
The problem with pension planning is not knowing when you'll die.  For example a DB pension is great if you're Captain Tom but no so great if you checkout at 80, where the chances are you'd have been better off transferring out to a drawdown pension and leaving a lump sum for your partner when you go.  Check out under 75 and that remaining pension pot is inherited tax-free, so that's a potential 40% increase in value straight away!
It's ironic given the immense uncertainties in retirement that an inflexible DB pension is still generally considered to be the gold standard.

Well there's one obvious solution in terms of date of death though even that could be thwarted.
An inflexible DB pension is the go,d standard because no one outside the public sector are offering them any more because they are too expensive to fund, gross contribution rates of 30%+ of salary far exceed any typical dcpension provision by employers.  And we then get the desperate grasping for inflated cetv figures that make up many threads on these boards, so yes db is pretty much the gold standard. 

I understand that, but my point was even though it's the 'gold standard' it won't be the best solution for many people, ie those who die before 80-ish.  I don't know the actuarial figures but I think the median age is of death in the UK is 81.  Assuming a standard distribution (which might well be wrong) then for all those who live (say) 20 years beyond that age, a roughly equal number will will die in the 20 years below that age.  (I suspect that's not quite right but can't find the actual figures)  My point is that there will certainly be many, many people who die before 81 and for those people a DB pension is probably not as good as transferring into a drawdown pension.  It might be marginal at 80, less so at 75, very likely at 70 and almost certainly at SRA.
It's one thing to consider pension planning 'on average' but in practice 'other people' are irrelevant because ultimately pension planning is a personal thing.  If, say, you are given five years to live at age 60 what would you do with your 'gold standard' DB pension?  I'm pretty sure I'd take the transfer value!

This supposed 'gold standard' probably refers to the value of the pension, not the style (ie DB vs DC). DB are mainly better because they're worth more, because more goes in, not because of the style of the payout.

Fair point.  I'm not disputing that they are far better than a typical personal pension plan + annuity on retirement, just pointing out that a drawdown pension plan will be a better deal for many people because of the flexibility offered when life doesn't go as planned.  The problem, of course, is not knowing the future . . . in which case flexibility has its own advantages.  It's all very tricky.

Thrugelmir

Mickey666 said:

zagfles said:

Mickey666 said:

NottinghamKnight said:

Mickey666 said:

That's a disadvantage of a DB pension (though a 2/3rd spouse pension would help significantly).
The problem with pension planning is not knowing when you'll die.  For example a DB pension is great if you're Captain Tom but no so great if you checkout at 80, where the chances are you'd have been better off transferring out to a drawdown pension and leaving a lump sum for your partner when you go.  Check out under 75 and that remaining pension pot is inherited tax-free, so that's a potential 40% increase in value straight away!
It's ironic given the immense uncertainties in retirement that an inflexible DB pension is still generally considered to be the gold standard.

Well there's one obvious solution in terms of date of death though even that could be thwarted.
An inflexible DB pension is the go,d standard because no one outside the public sector are offering them any more because they are too expensive to fund, gross contribution rates of 30%+ of salary far exceed any typical dcpension provision by employers.  And we then get the desperate grasping for inflated cetv figures that make up many threads on these boards, so yes db is pretty much the gold standard. 

I understand that, but my point was even though it's the 'gold standard' it won't be the best solution for many people, ie those who die before 80-ish.  I don't know the actuarial figures but I think the median age is of death in the UK is 81.  Assuming a standard distribution (which might well be wrong) then for all those who live (say) 20 years beyond that age, a roughly equal number will will die in the 20 years below that age.  (I suspect that's not quite right but can't find the actual figures)  My point is that there will certainly be many, many people who die before 81 and for those people a DB pension is probably not as good as transferring into a drawdown pension.  It might be marginal at 80, less so at 75, very likely at 70 and almost certainly at SRA.
It's one thing to consider pension planning 'on average' but in practice 'other people' are irrelevant because ultimately pension planning is a personal thing.  If, say, you are given five years to live at age 60 what would you do with your 'gold standard' DB pension?  I'm pretty sure I'd take the transfer value!

This supposed 'gold standard' probably refers to the value of the pension, not the style (ie DB vs DC). DB are mainly better because they're worth more, because more goes in, not because of the style of the payout.

Fair point.  I'm not disputing that they are far better than a typical personal pension plan + annuity on retirement, just pointing out that a drawdown pension plan will be a better deal for many people because of the flexibility offered when life doesn't go as planned.  The problem, of course, is not knowing the future . . . in which case flexibility has its own advantages.  It's all very tricky.

Mickey666 said:

zagfles said:

Mickey666 said:

NottinghamKnight said:

Mickey666 said:

That's a disadvantage of a DB pension (though a 2/3rd spouse pension would help significantly).
The problem with pension planning is not knowing when you'll die.  For example a DB pension is great if you're Captain Tom but no so great if you checkout at 80, where the chances are you'd have been better off transferring out to a drawdown pension and leaving a lump sum for your partner when you go.  Check out under 75 and that remaining pension pot is inherited tax-free, so that's a potential 40% increase in value straight away!
It's ironic given the immense uncertainties in retirement that an inflexible DB pension is still generally considered to be the gold standard.

Well there's one obvious solution in terms of date of death though even that could be thwarted.
An inflexible DB pension is the go,d standard because no one outside the public sector are offering them any more because they are too expensive to fund, gross contribution rates of 30%+ of salary far exceed any typical dcpension provision by employers.  And we then get the desperate grasping for inflated cetv figures that make up many threads on these boards, so yes db is pretty much the gold standard. 

I understand that, but my point was even though it's the 'gold standard' it won't be the best solution for many people, ie those who die before 80-ish.  I don't know the actuarial figures but I think the median age is of death in the UK is 81.  Assuming a standard distribution (which might well be wrong) then for all those who live (say) 20 years beyond that age, a roughly equal number will will die in the 20 years below that age.  (I suspect that's not quite right but can't find the actual figures)  My point is that there will certainly be many, many people who die before 81 and for those people a DB pension is probably not as good as transferring into a drawdown pension.  It might be marginal at 80, less so at 75, very likely at 70 and almost certainly at SRA.
It's one thing to consider pension planning 'on average' but in practice 'other people' are irrelevant because ultimately pension planning is a personal thing.  If, say, you are given five years to live at age 60 what would you do with your 'gold standard' DB pension?  I'm pretty sure I'd take the transfer value!

This supposed 'gold standard' probably refers to the value of the pension, not the style (ie DB vs DC). DB are mainly better because they're worth more, because more goes in, not because of the style of the payout.

just pointing out that a drawdown pension plan will be a better deal for many people because of the flexibility offered when life doesn't go as planned.  

Investments have no certainty.  DB schemes benefit from pooled risk. Which actually makes them cheaper. 

jamesd

ukdw said:

An even worse scenario is where one half of a couple is above state pension age with a small DB pension in payment, and the other half is a few years below state pension age, with little or no pensions of their own.  

In this situation if the older person dies then the surviving spouse will have to survive on just the half of the DB pension...

This is one of the cases where an earlier decision to transfer out of a DB scheme can improve outcomes. Typical private sector values can allow state pension deferral to provide 1.5 to 2 times the DB income and this can be split among them as desired, providing a 75-100% spousal pension and higher income while both are alive  along with uncapped inflation increases. It can also even out income before both state pensions are in payment.

Whether it's actually going to be better depends on specifics like CETV and ages.

NottinghamKnight

Mickey666 said:

NottinghamKnight said:

Mickey666 said:

That's a disadvantage of a DB pension (though a 2/3rd spouse pension would help significantly).
The problem with pension planning is not knowing when you'll die.  For example a DB pension is great if you're Captain Tom but no so great if you checkout at 80, where the chances are you'd have been better off transferring out to a drawdown pension and leaving a lump sum for your partner when you go.  Check out under 75 and that remaining pension pot is inherited tax-free, so that's a potential 40% increase in value straight away!
It's ironic given the immense uncertainties in retirement that an inflexible DB pension is still generally considered to be the gold standard.

Well there's one obvious solution in terms of date of death though even that could be thwarted.
An inflexible DB pension is the go,d standard because no one outside the public sector are offering them any more because they are too expensive to fund, gross contribution rates of 30%+ of salary far exceed any typical dcpension provision by employers.  And we then get the desperate grasping for inflated cetv figures that make up many threads on these boards, so yes db is pretty much the gold standard. 

I understand that, but my point was even though it's the 'gold standard' it won't be the best solution for many people, ie those who die before 80-ish.  I don't know the actuarial figures but I think the median age is of death in the UK is 81.  Assuming a standard distribution (which might well be wrong) then for all those who live (say) 20 years beyond that age, a roughly equal number will will die in the 20 years below that age.  (I suspect that's not quite right but can't find the actual figures)  My point is that there will certainly be many, many people who die before 81 and for those people a DB pension is probably not as good as transferring into a drawdown pension.  It might be marginal at 80, less so at 75, very likely at 70 and almost certainly at SRA.
It's one thing to consider pension planning 'on average' but in practice 'other people' are irrelevant because ultimately pension planning is a personal thing.  If, say, you are given five years to live at age 60 what would you do with your 'gold standard' DB pension?  I'm pretty sure I'd take the transfer value!

No, but given it's pooled risk and someone else is taking much of the risk (ie the employer) then it's a cracking deal for the majority even though most don't realise it. The value of cetv we often see quoted on these boards evidences this. the median life expectancy of someone at 60 is probably late eighties, certainly women, and that guarantee out to 100+ is worth a lot to many people.
Of course if you are in the extremely unusual position of being given a terminal diagnosis at 60, which gives you 5 years, then yes getting hold of the cetv is worthwhile but that's pretty niche. It's a bit like holding insurance for a number of years and then getting a refund of all your premiums before making a claim, it's an ideal scenario.  

Mickey666

Thrugelmir said:

Mickey666 said:

zagfles said:

Mickey666 said:

NottinghamKnight said:

Mickey666 said:

That's a disadvantage of a DB pension (though a 2/3rd spouse pension would help significantly).
The problem with pension planning is not knowing when you'll die.  For example a DB pension is great if you're Captain Tom but no so great if you checkout at 80, where the chances are you'd have been better off transferring out to a drawdown pension and leaving a lump sum for your partner when you go.  Check out under 75 and that remaining pension pot is inherited tax-free, so that's a potential 40% increase in value straight away!
It's ironic given the immense uncertainties in retirement that an inflexible DB pension is still generally considered to be the gold standard.

Well there's one obvious solution in terms of date of death though even that could be thwarted.
An inflexible DB pension is the go,d standard because no one outside the public sector are offering them any more because they are too expensive to fund, gross contribution rates of 30%+ of salary far exceed any typical dcpension provision by employers.  And we then get the desperate grasping for inflated cetv figures that make up many threads on these boards, so yes db is pretty much the gold standard. 

I understand that, but my point was even though it's the 'gold standard' it won't be the best solution for many people, ie those who die before 80-ish.  I don't know the actuarial figures but I think the median age is of death in the UK is 81.  Assuming a standard distribution (which might well be wrong) then for all those who live (say) 20 years beyond that age, a roughly equal number will will die in the 20 years below that age.  (I suspect that's not quite right but can't find the actual figures)  My point is that there will certainly be many, many people who die before 81 and for those people a DB pension is probably not as good as transferring into a drawdown pension.  It might be marginal at 80, less so at 75, very likely at 70 and almost certainly at SRA.
It's one thing to consider pension planning 'on average' but in practice 'other people' are irrelevant because ultimately pension planning is a personal thing.  If, say, you are given five years to live at age 60 what would you do with your 'gold standard' DB pension?  I'm pretty sure I'd take the transfer value!

This supposed 'gold standard' probably refers to the value of the pension, not the style (ie DB vs DC). DB are mainly better because they're worth more, because more goes in, not because of the style of the payout.

Fair point.  I'm not disputing that they are far better than a typical personal pension plan + annuity on retirement, just pointing out that a drawdown pension plan will be a better deal for many people because of the flexibility offered when life doesn't go as planned.  The problem, of course, is not knowing the future . . . in which case flexibility has its own advantages.  It's all very tricky.

Mickey666 said:

zagfles said:

Mickey666 said:

NottinghamKnight said:

Mickey666 said:

That's a disadvantage of a DB pension (though a 2/3rd spouse pension would help significantly).
The problem with pension planning is not knowing when you'll die.  For example a DB pension is great if you're Captain Tom but no so great if you checkout at 80, where the chances are you'd have been better off transferring out to a drawdown pension and leaving a lump sum for your partner when you go.  Check out under 75 and that remaining pension pot is inherited tax-free, so that's a potential 40% increase in value straight away!
It's ironic given the immense uncertainties in retirement that an inflexible DB pension is still generally considered to be the gold standard.

Well there's one obvious solution in terms of date of death though even that could be thwarted.
An inflexible DB pension is the go,d standard because no one outside the public sector are offering them any more because they are too expensive to fund, gross contribution rates of 30%+ of salary far exceed any typical dcpension provision by employers.  And we then get the desperate grasping for inflated cetv figures that make up many threads on these boards, so yes db is pretty much the gold standard. 

I understand that, but my point was even though it's the 'gold standard' it won't be the best solution for many people, ie those who die before 80-ish.  I don't know the actuarial figures but I think the median age is of death in the UK is 81.  Assuming a standard distribution (which might well be wrong) then for all those who live (say) 20 years beyond that age, a roughly equal number will will die in the 20 years below that age.  (I suspect that's not quite right but can't find the actual figures)  My point is that there will certainly be many, many people who die before 81 and for those people a DB pension is probably not as good as transferring into a drawdown pension.  It might be marginal at 80, less so at 75, very likely at 70 and almost certainly at SRA.
It's one thing to consider pension planning 'on average' but in practice 'other people' are irrelevant because ultimately pension planning is a personal thing.  If, say, you are given five years to live at age 60 what would you do with your 'gold standard' DB pension?  I'm pretty sure I'd take the transfer value!

This supposed 'gold standard' probably refers to the value of the pension, not the style (ie DB vs DC). DB are mainly better because they're worth more, because more goes in, not because of the style of the payout.

just pointing out that a drawdown pension plan will be a better deal for many people because of the flexibility offered when life doesn't go as planned.  

Investments have no certainty.  DB schemes benefit from pooled risk. Which actually makes them cheaper. 

Yes, they benefit from pooled risk, such as not having to pay out much for all those who die early.  That's certainly a benefit for the pension scheme and those who live well past median life expectancy, but it's no benefit to those who die early.
Whereas a drawdown pension provides flexibility so that more can be drawn if personal life expectancy takes a turn for the worse, plus even if you suddenly drop dead, there is still value remaining in the pot to be passed on. 
Pension planning is difficult because it is usually the period of life during which we have little control over our health, so almost anything can happen.  If health take a dive and I suddenly need more money then I could drawdown that money (pot permitting of course), but if I've got a 'gold plated' DB pension then I'm stuck with my regular income.  It's no benefit to me that my early demise will pay for someone else's pension is it?
I guess it's a matter of perspective.  Pension advisors will plan for 'averages' and 'typical' outcomes because that's all they can do.  What they can't do is pick the winners and losers, no one can.  But that's why flexibility has it's own value, which is often overlooked.