State pension, taxation, private pension etc. for 46-year-old widow

thelawnet

I have been assisting a woman who barely speaks English, whose details are as follows:

* deceased spouse was born in 1957, died in January 2020
* she was born March 1976
* one child who is currently aged 17
* spouse had a defined benefit pension scheme worth £2200 a month during life; he was retired at death. This was not paid out due to lack of paperwork, which I have now provided, however according to the scheme (https://www.bocpensions.co.uk/) they 'may' reduce the pension (normally 1/2) due to the age gap. I went to the office and the administrator told me they would decide this, but they said they don't provide any explanation or calculation about this, which strikes me as absurd as it should all be written out.... There also appears to be a pension of 1/4 due to the child as long as he continues at school/university or reaches age 24, whichever is sooner. 
* she also has a pension from Canada Life of just over £100/month, which I had a letter from Canada Life saying it wasn't taxable. This seems to be an annuity first paid out since 2015. https://www.gov.uk/tax-on-pension-death-benefits There was a second pension from Canada Life worth £1300/month, however in August this fell to about £800/month. I called Canada Life and they told me HMRC had put her on an emergency tax code. I called HMRC, and HMRC said that they had applied the 1257 tax code to the £100/month (which is not taxable in the first place), and then an emergency tax code to the £1300. I told them they should apply 1257 to the £1300, and then the £100 should be paid gross (it's quite possible that both pensions are in fact tax-free but anyway), so they said they would do that, notify Canada Life, and Canada Life should repay the tax to her.
* With regards to the defined benefit scheme, I provided the required paperwork (marriage certificate), and apparently they will pay her within the next few weeks. It seems they should deduct tax at source, but I am not clear how this would work given that the pension should have started during 2019-20 tax year, and it's now 2022-23, so from what I can see:

1. £1300 of taxable (?) monthly income from annuity, @ 1257 tax code hence about £50/month income tax due
2. £100 monthly tax-free income, from annuity
3. probably somewhere around £1500/month from the defined benefit scheme, taxable, hence if the £1300 was taxable, then she should simply receive 80% of this each month....
4. however if she receives the approx 35 months' payments in one go, then that would be over £50,000, but I'm not sure whether she should then be liable for higher rate tax based on receiving a large amount income in the current year, or simply basic rate, based on the taxation treatment had the pension scheme been paid on scheudle

* I am not clear on her national insurance record; I don't believe she has ever worked, but she might well have a reasonable NI record based on the national insurance stamp (unfortunately she has a non-biometric Indonesian passport and no driving licence, so the government refuses to provide any online services to her, and to find these things out takes a LONG time on hold). She is planning to move to Indonesia in the next few years so presumably at best she gets a frozen (no social security agreement with the UK) state pension, not sure if being a widow affects things here.

Marcon

thelawnet said:

I have been assisting a woman who barely speaks English, whose details are as follows:

* deceased spouse was born in 1957, died in January 2020
* she was born March 1976
* one child who is currently aged 17
* spouse had a defined benefit pension scheme worth £2200 a month during life; he was retired at death. This was not paid out due to lack of paperwork, which I have now provided, however according to the scheme (https://www.bocpensions.co.uk/) they 'may' reduce the pension (normally 1/2) due to the age gap. I went to the office and the administrator told me they would decide this, but they said they don't provide any explanation or calculation about this, which strikes me as absurd as it should all be written out.... There also appears to be a pension of 1/4 due to the child as long as he continues at school/university or reaches age 24, whichever is sooner. 

It's great you've been able to help. The administrators would have been in an impossible position without the necessary paperwork - they cannot pay out benefits until they have all the relevant information, proof of age/marriage etc.

With a much younger spouse, as here, it is almost invariably a trustee discretion as to whether the spouse's pension is reduced because of the age difference. There is nothing which can be 'written out' - the trustees can only exercise a discretion at the time the situation actually arises, so cannot give any assurances or 'calculations' ahead of time. The trustees' decision, if properly exercised, is very unlikely to be overturned if challenged, but there is never any harm in asking. As to the calculation, there is unlikely to be one; the trustees will either follow the rules of the scheme if they specify the reduction (e.g. 'reduced by 0.x% for each 12 months of age difference where the spouse is at least xxx years younger than the member'), or act on guidance from the scheme actuary.

If the son is classed as an 'eligible child' under the rules of the scheme, then a child's pension will be paid in accordance with the rules. Again, the necessary paperwork such as a birth certificate will be necessary.

thelawnet said:

* she also has a pension from Canada Life of just over £100/month, which I had a letter from Canada Life saying it wasn't taxable. This seems to be an annuity first paid out since 2015. https://www.gov.uk/tax-on-pension-death-benefits There was a second pension from Canada Life worth £1300/month, however in August this fell to about £800/month. I called Canada Life and they told me HMRC had put her on an emergency tax code. I called HMRC, and HMRC said that they had applied the 1257 tax code to the £100/month (which is not taxable in the first place), and then an emergency tax code to the £1300. I told them they should apply 1257 to the £1300, and then the £100 should be paid gross (it's quite possible that both pensions are in fact tax-free but anyway), so they said they would do that, notify Canada Life, and Canada Life should repay the tax to her.

This seems to be on the way to being resolved, but with Christmas and New Year coming up, I doubt that will make things any speedier.

thelawnet said:

* With regards to the defined benefit scheme, I provided the required paperwork (marriage certificate), and apparently they will pay her within the next few weeks. It seems they should deduct tax at source, but I am not clear how this would work given that the pension should have started during 2019-20 tax year, and it's now 2022-23, so from what I can see:

1. £1300 of taxable (?) monthly income from annuity, @ 1257 tax code hence about £50/month income tax due
2. £100 monthly tax-free income, from annuity
3. probably somewhere around £1500/month from the defined benefit scheme, taxable, hence if the £1300 was taxable, then she should simply receive 80% of this each month....
4. however if she receives the approx 35 months' payments in one go, then that would be over £50,000, but I'm not sure whether she should then be liable for higher rate tax based on receiving a large amount income in the current year, or simply basic rate, based on the taxation treatment had the pension scheme been paid on scheudle

The DB scheme will have to use an emergency code until HMRC notifies them otherwise.

If her entitlement to a pension arose in a previous tax year (or years), then the income can be treated as taxable in those years to avoid higher rate tax, as confirmed here: https://www.gov.uk/hmrc-internal-manuals/self-assessment-manual/sam121160

You're clearly doing a fantastic job for this poor lady, but if you need a bit of (free) expert input from an impartial source, ask her to authorise https://www.moneyhelper.org.uk to deal direct with you on her behalf.

thelawnet

I don't think I need Money Helper or whatever, the problem is more that there is a lack of documentation, online accounts, etc. and it's difficult for me to get hold of information as she needs to be present, wait on hold and it's rather tiresome.

I suspect it's probably worth spending £40 or so on a provisional driving licence in order that she can get an online HMRC account which I can then access rather more easily instead of waiting on the phone.

I just checked online and I saw 2.5% per year beyond 10 years as a possible figure for a surviving spouse (nothing to do with this scheme, just in general), so it might be she receives only 27.5% or 30%  of his pension, I will wait and see about that. Apparently the person who is administering it is leaving the company on Friday so might or might not get round to it....

tacpot12

I appreciate your frustration, it can be very tiresome, but generally things do get sorted, but pensions providers have always been slow with their customer service. They seem to think that  because it takes 30-40 years to earn a pension they have a long time to sort out customer service issues!  And of course most organisations don't have enough agents on their phone lines. I've had success calling early in the day, say at around 9am, after people that work have called when the phone lines early, and before the indolent have risen. 

Getting a provisional driving license sounds like an excellent idea that will help this person greatly, but its another task for you. 

Based on when her Indonesian passport expires, it may be worthwhile trying to replace the non-biometric passport with a biometric one if this is going to be necessary for her  to travel to Indonesia anyway.

Well done for trying to help. 

Marcon

thelawnet said:

I don't think I need Money Helper or whatever, the problem is more that there is a lack of documentation, online accounts, etc. and it's difficult for me to get hold of information as she needs to be present, wait on hold and it's rather tiresome.

I suspect it's probably worth spending £40 or so on a provisional driving licence in order that she can get an online HMRC account which I can then access rather more easily instead of waiting on the phone.

I just checked online and I saw 2.5% per year beyond 10 years as a possible figure for a surviving spouse (nothing to do with this scheme, just in general), so it might be she receives only 27.5% or 30%  of his pension, I will wait and see about that. Apparently the person who is administering it is leaving the company on Friday so might or might not get round to it....

They could fill in the gaps in your pensions knowledge, which might then help the lady concerned?

Completely agree about getting access to online services for her if possible.

thelawnet

I just spoke to BOC and apparently they have now processed the spouse's pension back to 2020 and will pay it in the next few days, but didn't know anything about the child, so that's another £18,000 or thereabouts that she's due, plus the monthly payment going forward, once we have sent the child's birth certificate and letter from school. 

JoeCrystal

Not sure how it works but are the child's pension taxable if it is above its personal allowance (if it is paid out in one go)?

thelawnet

JoeCrystal said:

Not sure how it works but are the child's pension taxable if it is above its personal allowance (if it is paid out in one go)?

According to Marcon's link above it might be possible to get the pension spread back over the last number of years.

https://www.gov.uk/hmrc-internal-manuals/self-assessment-manual/sam121160