A substantial age difference between a husband and wife could result in a reduced survivor pension payout, as highlighted in a recent query addressed by former Pensions Minister Steve Webb. The case involves a woman in her late 60s whose husband, in his early 90s, has both a state pension and a company pension.
While the husband's company pension scheme confirmed that a 50% spouse's pension would typically be payable, it noted that this amount would be reduced if the spouse is more than 15 years younger than the member. In this instance, the wife is more than 15 years younger than her husband. The scheme explained that the reduction is necessary because a much younger spouse can expect to receive a pension for a longer period, increasing the scheme's long-term liabilities.
When contacted on the reader's behalf, the scheme provided an estimated figure, suggesting that the survivor pension would be reduced by just over a quarter, leaving the wife with just over one-third of the husband's current pension. The exact reduction is determined by an actuary's judgment at the time of the husband's death.
Regarding the state pension, the couple falls under different systems due to their ages. The husband reached pension age before April 2016, adhering to the 'old' state pension system, while his wife, having recently reached pension age, falls under the 'new' system.
If the husband dies first, his wife's own state pension would remain unaffected. However, she could inherit a portion of his additional state pension (SERPS/State Second Pension). Since he was likely 'contracted out' of SERPS due to his company pension, his additional state pension might be modest. The percentage she can inherit depends on his date of birth. As the husband was born before October 1937, she is eligible to inherit 100% of any additional state pension he is currently receiving. Additionally, she will inherit 50% of any 'graduated retirement benefit' he accrued during the 1960s and early 1970s, regardless of his birth date.
Webb, now a partner at Lane Clark & Peacock, encourages couples to proactively understand their financial situation following the death of a partner. For those with questions, MoneyHelper, a government-backed organization, offers free assistance on pensions.