Q My husband passed away in June aged 79. He worked at the same company for over 44 years, and I am entitled to a share of his pension. But the pension company has reduced the amount I’m due to receive because of the difference in our ages. He was 16 years older than me, as I am 63, and while there is no reduction for the first ten-year gap, the company has applied a 2 per cent reduction for each of the other six years. So, I will get half of his pension, less 12 per cent. Is this legal?
A Since writing last week’s column on what happens to your partner’s pension when they die, I’ve received dozens of queries from readers looking for advice with both private and state pensions. I will try and answer all of these over the coming weeks, but if you need one-to-one support with your pension, there are a number of free resources out there, such as Pension Wise and the Pensions Advisory Service.
Your query is related to your late husband’s “defined benefit” pension (sometimes called a “final salary”). These really are the gold standard when it comes to retirement savings. The amount your husband would have received would be based on his final salary when he was working (or the average over his career), with a guaranteed amount being paid to him every single month. This would have likely increased annually to keep up with inflation.
And as you’ve found out, you are entitled to a share of his pension upon his death. Survivor benefits on final salary pension are one of their most generous attributes, guaranteeing to pay you a monthly amount until your death, in your case 50 per cent. Pension benefits can also be paid to dependents (usually children aged up to 23). The rules tend not to apply to unmarried, cohabitating couples, although public-sector pension schemes have this provision.
From the research I’ve done into your situation, the caveat on age gaps is common. When the Police Force reformed its pension scheme to allow survivor benefits to be paid to unmarried partners in the early 2000s, it stated that “safeguards would be needed to ensure that partnerships were real and binding commitments (rather than artificial devices to obtain pension benefits for friends and relatives who are not financially dependent).”
The term in your husband’s pension that has reduced the amount you get is one of the safeguards that can be added to prevent deathbed marriages and people exploiting the generous benefits on offer. It is also a necessary part of maintaining the financial health of the pension scheme.
Defined benefit pensions are incredibly expensive to run – perhaps why very few employers still offer them – and the trustees have to ensure that there is enough money to pay their former employees (and their survivors) for decades. Your life expectancy, according to the ONS, is 87 years old; although there’s a one in four chance you’ll live to 94.
The pension scheme has already paid out for almost 20 years for your late husband, and it could potentially pay out for another three decades for you. So where there is an age gap, this clause acts as a brake on what could be an unaffordable payment for the scheme to make.
The clause that you’ve been hit with seems to be similar to others. Going back to the Police pension, it introduced a clause stating that “for partners (both married and unmarried) who are more than 12 years younger than the officer, the partner’s pension should be reduced by 2.5 per cent for every year or part year the age gap exceeds 12 years, up to a maximum of 50 per cent”.
It might be worth contacting the trustees of the pension to see if they will reverse its decision on the reduction.
If you can demonstrate that you had been married for a long time and that your union was not designed to maximise your pension amount, you may be able to get that reduction waived or lessened.
Gareth Shaw is the Head of Money at which.co.uk