5 Year Guarantee Pension Payment following Death

Pepsi158

My husband had a private final salary pension which he took at the age of 60 in August 2023.
He took the maximum 25% lump sum with reduced monthly pension payments.
My husband sadly passed away in November 2023.
His company originally wrote and told me that the 5 year guarantee applied and therefore my husband's estate would receive a lump sum of maximum 3 years Final Pensionable Salary.
6 months letter I received a letter stating that they had made a mistake and there would be no lump sum payable as they should have taken into account the lump sum already taken when my husband retired.
Is this correct ?  I thought that what was taken at retirement and what was given following a death would be 2 separate things ?
Can anyone advise ?

Somebody

You need to check the scheme rules.  Also, have you asked for commencement of the Spouse's pension?

Extract from one of  my schemes:

What happens if I die after I retire? 

Your pension is guaranteed to be paid for a set amount of time (the pension guarantee period). This means if you die within the pension guarantee period the remaining pension payments will still be paid as a lump sum until the end of the guarantee period. If you die after age 75, any balance of pension instalments that are paid as a Defined Benefit Lump Sum Death Benefit will be subject to a tax charge normally at the recipient's marginal rate of income tax. 

The lump sum payment will be equal to the rest of the monthly pension payments you would have received during the pension guarantee period. The scheme trustees will decide who this lump sum or pension should be paid to. If you’d like to tell the trustees who you would like to receive this payment if you die, please contact us and ask for an Expression of Wish form. 

The pension guarantee period runs for 5 years from your retirement date. 

This pension guarantee lump sum is paid in addition to any spouse’s, civil partner’s or dependant’s pension. 

Spouse’s pension 

If you die before your spouse, then a spouse’s pension may begin. 

The spouse's pension is calculated as 50% of the pension a member is receiving at the date of death. Once in payment, If you die before your spouse, then a spouse’s pension may begin. The spouse’s pension is calculated as 50% of your initial pension at retirement (before you took a tax free cash sum) increased to the date of death, unless you are notified otherwise.

Keep_pedalling

It sounds correct otherwise if he had not taken the lump sum the overall payment would have been a lot less than if he had.

Marcon

Pepsi158 said:

My husband had a private final salary pension which he took at the age of 60 in August 2023.
He took the maximum 25% lump sum with reduced monthly pension payments.
My husband sadly passed away in November 2023.
His company originally wrote and told me that the 5 year guarantee applied and therefore my husband's estate would receive a lump sum of maximum 3 years Final Pensionable Salary.
6 months letter I received a letter stating that they had made a mistake and there would be no lump sum payable as they should have taken into account the lump sum already taken when my husband retired.
Is this correct ?  I thought that what was taken at retirement and what was given following a death would be 2 separate things ?
Can anyone advise ?

I'm sorry you are having to contend with this on top of the death of your husband. It does sound as if they are confusing two things, but without seeing the rules it's impossible to be categoric. It's unusual for a scheme to have a different guarantee period depending on whether or not tax free cash was taken at the point of retirement. Taking tax free cash normally impacts on the amount actually payable under the guarantee, since it is normally based on the pension being received at the time of death.

You would be well within your rights to express dismay that it took them 6 months to write and say they had made an error.

I'd write back to them saying that, and point out that your husband had received only four* instalments of his monthly pension at the time he died. You would therefore expect the five year guarantee to kick in, meaning that there would be a amount payable of **56 payments at the rate of pension he was receiving at the time he died. Ask them to explain why they now think that is not the case.

*possibly only 3, depending on when in the August he started to receive his pension and when in November he died, in which case 57** payments might be outstanding

Pepsi158

Many thanks for your comments, I did query this with the pension company, I have now received this response :-

As I set out in my recent letter the primary duty of a pension scheme trustee is to administer the scheme in line with the scheme’s Trust Deed and Regulations (TDR). The complete definition in the TDR relating to 5 year guarantee payments states that the lump sum is limited such that it cannot, when aggregated with any lump sums paid to the member when they took their pension, exceed a maximum of three times the member’s Final Pensionable Salary.

 It might be helpful for me to include a summary of the actual calculation:
 1) 3 x FPS x cost of living increase = £ A
 2) Commutation lump sums paid = £ B
 3) 5 year guarantee potentially due = £ C

 The benefit structure prescribed in the TDR means that we can only pay a benefit if the figure quoted in 2 when added to 3 is less than the figure quoted in 1. As this is not the case no 5 year guarantee can be paid

I am receiving a spouse pension but it just seems unfair that if my husband had survived for 5 years he would have had 5years pension plus the lump sum but because he died having taken the lump sum the pension company get to keep the money despite the 5 year guarantee clause.