Options to mitigate early death of one partner

Pat38493

What are the general options that would be available to mitigate the possible early death of one partner in a couple who has significant health conditions, but also is the one who has the highest guaranteed ongoing income due to DB pensions?

I often see comments here that you need to address this but how?

- Life insurance?  This seems the most obvious option but I presume it's going to be pretty expensive to take out a large life insurance policy based on someone with significant health conditions.  Possibly prohibitively expensive.
- Just saving up more money - i.e. work longer.
- Plan to downsize the house or some kind of equity release if one partner dies?
- Combination of above e.g. smaller life insurance that would cover missing costs for a couple of years to give time to downsize the house and suchlike?

I would be interested to know what would normally be put in place either by IFAs or DIY investors for this?

Silvertabby

By 'partner', do you mean co-habiting partner or legally married spouse?

Whilst most DB pension schemes now offer survivor's pensions to co-habiting partners, the new rules weren't always made retrospective, and so they may pay a lesser rate of pension (or even no pension) to an unmarried partner.

If they aren't married, would that be an option?  That 'little piece of paper' would make things so much easier for the surviving partner in so many ways.

SVaz

We took out life cover at 50 that runs to age 70 for £150k,  I wish we’d had more tbh.
It was before any medical issues like my myocarditis reared their ugly head so it only costs £30 a month. 

It will provide a few years income,  12 years for me, replacing my Wife’s SP.
Fewer years for my Wife as she would also lose half my DB so would have to replace around £16k a year.   We would each inherit the other’s Sipp, mine is currently 5x larger but will be similar amounts by SP age as we’ll use mostly mine to ‘fill the gap’ of early retirement, assuming we make it to SP age.
It’s less of an issue if we make it to 70 before one of us goes. 

Pat38493

Silvertabby said:

By 'partner', do you mean co-habiting partner or legally married spouse?

Whilst most DB pension schemes now offer survivor's pensions to co-habiting partners, the new rules weren't always made retrospective, and so they may pay a lesser rate of pension (or even no pension) to an unmarried partner.

If they aren't married, would that be an option?  That 'little piece of paper' would make things so much easier for the surviving partner in so many ways.

I mean we are married.

We do both have DB pensions and state pensions available from 67.

However the loss of half of the larger DB pension plus the whole state pension of my wife would obviously put a major dent in the finances if it happened much earlier than hoped.  

If this happened, for sure I would not stay in the current property, but obviously you don't want to be contending with an urgent house move for financial reasons within a year or two of having a spouse pass away.

Her DB pension is an NHS 1995 scheme so I believe I would get 3 months at full pension and then 50% thereafter.  Wife has no DC pots at all - it's all NHS 1995 and SP.

If I put it the other way around, the issue still exists, but it's not as severe because she would get half of my much smaller DB pension and whatever is left in my pension pots.  She would be left with more than enough to at least cover all the bills until she wanted to downsize.  The other way around it would probably be quite tight.

The other complication is that we will probably downsize anyway in the next few years so it's not even totally clear what the shortfall will be in both scenarios.

Malthusian

Is she working? (Could be a silly question depending on the serious health conditions, but people do.) If so, does her employer have death in service cover? Could she change job to one that did?

- Plan to downsize the house or some kind of equity release if one partner dies?

As you are planning to downsize anyway, even when there are two of you, equity release would be a ruinously bad idea. The equity in the house is the main asset you have, that has been built up by your joint efforts, and won't be reduced on the death of your partner.
It is notoriously difficult to release significant capital from downsizing without making unpalatable sacrifices, but a single widow/er has more flexibility to move somewhere smaller and cheaper than a married couple.

Pat38493

Malthusian said:

Is she working? (Could be a silly question depending on the serious health conditions, but people do.) If so, does her employer have death in service cover? Could she change job to one that did?

- Plan to downsize the house or some kind of equity release if one partner dies?

As you are planning to downsize anyway, even when there are two of you, equity release would be a ruinously bad idea. The equity in the house is the main asset you have, that has been built up by your joint efforts, and won't be reduced on the death of your partner.
It is notoriously difficult to release significant capital from downsizing without making unpalatable sacrifices, but a single widow/er has more flexibility to move somewhere smaller and cheaper than a married couple.

No longer working.  She has taken full NHS pension with MHO status at 56.  Her health conditions are not so bad that she couldn't have carried on working at least part time, but she had the full pension available already.  It's more that I am pretty sure the health conditions might make life insurance pretty expensive - will probably get some quotes.

I was not thinking about equity release before one of us died - more afterwards and even then, downsizing would be far preferable.

We will definitely want to move to a smaller house as this one will be way too big for us in the long term.  Unless we decide to move to a more expensive area it should release at least some capital.  However this might also be used to help the (now adult) kids with house deposits or the like.  This is why I'm thinking it through a bit now.

hugheskevi

Personally, I plan to balance pensions between my wife and I with various small tweaks throughout retirement. We will always prioritise tax efficiency, ensuring we use both of our Personal Allowances in every year after age 55. We have DC pots to use for the period prior to commencing State Pensions, and I will use that to balance out the State and DB pension provision.

Initially, I will use the DC pension of the person with the lower pension, as should the person with the higher pension die early the better tax treatment of DC pension on death before age 75 will advantage the person with the lower pension.

I will also delay the commencement of the DB pension of the person with the lower pension, as our survivor benefits are unaffected by the age of commencement but the person with the lower pension will then have a higher DB pension themselves if they take it later. Our DB pensions have additional protections for death within 5 years of commencing pension, but after that the survivor benefits are straightforward.

Finally, I will delay taking the State Pension of the person with lower pension so that their State Pension is higher through deferral.

Throughout all of that, I will keep an eye on the position after death, aiming to bring the combined State Pension and DB pension income post death of either person as close as possible around age 70, as deferral after that would not be efficient. For me, that won't be difficult as our pensions are fairly similar but for bigger differences other measures would be needed such as those you mention. You may also have an option to allocate some of the NHS pension to improve survivor benefits.

Silvertabby

Pat38493 said:

Silvertabby said:

By 'partner', do you mean co-habiting partner or legally married spouse?

Whilst most DB pension schemes now offer survivor's pensions to co-habiting partners, the new rules weren't always made retrospective, and so they may pay a lesser rate of pension (or even no pension) to an unmarried partner.

If they aren't married, would that be an option?  That 'little piece of paper' would make things so much easier for the surviving partner in so many ways.

I mean we are married.

We do both have DB pensions and state pensions available from 67.

However the loss of half of the larger DB pension plus the whole state pension of my wife would obviously put a major dent in the finances if it happened much earlier than hoped.  

If this happened, for sure I would not stay in the current property, but obviously you don't want to be contending with an urgent house move for financial reasons within a year or two of having a spouse pass away.

Her DB pension is an NHS 1995 scheme so I believe I would get 3 months at full pension and then 50% thereafter.  Wife has no DC pots at all - it's all NHS 1995 and SP.

If I put it the other way around, the issue still exists, but it's not as severe because she would get half of my much smaller DB pension and whatever is left in my pension pots.  She would be left with more than enough to at least cover all the bills until she wanted to downsize.  The other way around it would probably be quite tight.

The other complication is that we will probably downsize anyway in the next few years so it's not even totally clear what the shortfall will be in both scenarios.

My sympathies.

Reading your other responses, would downsizing now into a more manageable property make sense?  That could release capital to make life more pleasant for for of you now, and make your life easier when the time comes.

I've heard it said that the surviving spouse shouldn't even think about moving/downsizing after a bereavement, but finances could scupper that. 

LHW99

Have you worked out exactly what each of you would have in investments / pensions in each scenario, and compared that will what that partner would ideally need to maintain their lifestyle?

You could give her £2880 per year to put into a SIPP in her name, and the government would add £720 tax relief/refund. You could do this until she was 75.

That pot could then pass to you if she did pass first.