Co-op PACE spousal pension more than original pension

Consumer3

Hello
This will no doubt be the first of many questions I think, as my FIL passed away recently and I’m sorting pension paperwork for MIL.

My FIL was getting a monthly or 4 weekly payment of £102 from his Co-op DB PACE pension. After contacting them to notify our bereavement they sent a letter back offering my MIL a lump sum of around £22k or a yearly sum of £1,544. She is relatively young in her early 70’s. There is mention of GMP in the letter.
I don’t understand how her yearly spousal pension would be more than my FIL’s original yearly pension? It also doesn’t state whether it will go up with CPI etc.
  
Co-op offices are closed for the weekend so I’ll draft an email with all our questions but any pointers or ideas on questions we should ask would be gratefully received.
Thanks for reading.

Dazed_and_C0nfused

Is the £102 the gross payment or net after tax?

Consumer3

Dazed_and_C0nfused said:

Is the £102 the gross payment or net after tax?

The amount that went into his account after tax, with State pension, the co-op and a smaller pension he did get taxed a small amount each year, I don’t have the paperwork to hand with the exact amount. 

Thanks

Edit to add he was much older, in his mid 80’s if that makes a difference.

Dazed_and_C0nfused

Consumer3 said:

Dazed_and_C0nfused said:

Is the £102 the gross payment or net after tax?

The amount that went into his account after tax, with State pension, the co-op and a smaller pension he did get taxed a small amount each year, I don’t have the paperwork to hand with the exact amount. 

Thanks

It probably isn't that relevant but in some situations the gross pension could be as much as £204 each time with the pension company having to deduct 50% in tax.

Usually that happens where there's a mix of a small occupational or private pension and large State Pensions (larger than the Personal Allowance).

The State Pension is never paid monthly (usually 4 weekly but can be weekly) but chances are the Co-op pension will be monthly rather than 4 weekly.

Consumer3

Dazed_and_C0nfused said:

Consumer3 said:

Dazed_and_C0nfused said:

Is the £102 the gross payment or net after tax?

The amount that went into his account after tax, with State pension, the co-op and a smaller pension he did get taxed a small amount each year, I don’t have the paperwork to hand with the exact amount. 

Thanks

It probably isn't that relevant but in some situations the gross pension could be as much as £204 each time with the pension company having to deduct 50% in tax.

Usually that happens where there's a mix of a small occupational or private pension and large State Pensions (larger than the Personal Allowance).

The State Pension is never paid monthly (usually 4 weekly but can be weekly) but chances are the Co-op pension will be monthly rather than 4 weekly.

Ah interesting I’ll look at all the paperwork together as yes I’ve started to learn that one pension may be doing the tax for the whole amount. 

Thanks for your help.

NedS

Consumer3 said:

Hello
This will no doubt be the first of many questions I think, as my FIL passed away recently and I’m sorting pension paperwork for MIL.

My FIL was getting a monthly or 4 weekly payment of £102 from his Co-op DB PACE pension. After contacting them to notify our bereavement they sent a letter back offering my MIL a lump sum of around £22k or a yearly sum of £1,544. She is relatively young in her early 70’s. There is mention of GMP in the letter.
I don’t understand how her yearly spousal pension would be more than my FIL’s original yearly pension? It also doesn’t state whether it will go up with CPI etc.
 

If you simply take into account 20% income tax, an annual pension of £1,544 gross would be £102.93/month after 20% tax deducted, so I suspect they are the same.

xylophone

She is being offered trivial commutation of a dependant's pension?

See  (re tax)

https://www.gov.uk/hmrc-internal-manuals/pensions-tax-manual/ptm073700



With regard to the amount she would receive as a monthly pension (apparently the same as her spouse's  gross annual pension (rather than just half), I wonder did he take a PCLS when he retired?

See  p13 here

https://coop.pacepensions.co.uk/Uploads/Documents/00/00/00/15/DocumentDocument_FILE/Co-op-Pace-Complete-Member-Guide.pdf

What if I die after I’ve taken my pension?

If you die after you’ve taken your pension, Pace will pay the following benefits to your family:

• A pension for your Qualifying Partner, payable for life, equal to 50% of your pension (before you took any of it as a lump sum).

• A lump sum (which is only paid if you die before your pension has been paid for less than five years), equal to the balance of your pension payments in this five-year ‘guarantee period’.

Consumer3

Thanks @NedS and @xylophone
Yes he did take the lump sum. Thanks for the guide, some late night/early morning reading for me, I do like to understand the workings! I was worried they had calculated it wrongly.

So now just to decide on the lump sum or the much smaller yearly amount, as she will need some help paying private rent. 

xylophone

So now just to decide on the lump sum or the much smaller yearly amount, as she will need some help paying private rent. 

Don't forget the tax if she takes the lump sum

How a trivial commutation lump sum death benefit is taxed

Sections 579A, 579D and 683 Income Tax (Earnings and Pensions) Act 2003

Regulation 11 Income Tax (PAYE) Regulations 2003 - SI 2003/2682

The whole lump sum is taxable as pension income of the dependant or individual entitled to receive it. The pension scheme administrator must apply PAYE to the lump sum payment before paying the lump sum.

As the payments are taxable as pension income the rate of tax is the lump sum recipient’s marginal rate of tax for the tax year in which the lump sum is paid. So, if the individual is a basic rate taxpayer, the rate is basic rate and if the individual is a higher rate taxpayer the rate is the higher rate applying to the individual.

 - and what effect would having the lump sum have on any benefits that she might claim?

Consumer3

@xylophone
Yes we had already started to think the lump sum may not be a good idea, it would push her savings over the thresholds for housing benefits etc. Unfortunately (or that should be fortunately) we don’t know much about the benefit system as we have never qualified for any. 

More stuff to read and learn. 

WYSPECIAL

Dazed_and_C0nfused said:

Consumer3 said:

Dazed_and_C0nfused said:

Is the £102 the gross payment or net after tax?

The amount that went into his account after tax, with State pension, the co-op and a smaller pension he did get taxed a small amount each year, I don’t have the paperwork to hand with the exact amount. 

Thanks

It probably isn't that relevant but in some situations the gross pension could be as much as £204 each time with the pension company having to deduct 50% in tax.

Usually that happens where there's a mix of a small occupational or private pension and large State Pensions (larger than the Personal Allowance).

The State Pension is never paid monthly (usually 4 weekly but can be weekly) but chances are the Co-op pension will be monthly rather than 4 weekly.

Co-op pension and salary are both paid four weekly.