The costly hole in Graham’s pension scheme
“I'm a physics teacher and my partner, Jackie is a nursery school teacher. We have decided we want to start our own family, so I started looking at how our finances stacked up. That's when I realised that my pension scheme has an expensive black hole as far as Jackie is concerned, because we aren't married.
I was worried about what would happen if I were to die? I’d want Jackie and any children we have to be OK. We have insurance to pay off the mortgage, so she would have a roof over her head. But Jackie works part-time and only earns about £5,000 a year. If we had children, she might not work at all for a while. She wouldn’t have enough money on her own to run a home let alone bring up a family.
At the moment we rely mainly on my salary. It's not a fortune, but enough to cover the bills and enjoy ourselves a bit. If I died, Jackie would need to replace some of what I bring in. I thought my pension scheme at work had that covered. Well, it does and it doesn’t.
On the face of it, the scheme is really good. If I died, it pays out a lump sum of three times my salary – which would be about £90,000. Jackie would get the lump sum – I’ve filled out a form at work to make sure of that.
The scheme also pays pensions to dependants. But, up to 2006, only a widow – or widower for that matter – would get the pension. From 1 January 2007, that changed so now unmarried partners can get the pension too, but - and it’s a big ‘but’ - only my service from 1 January 2007 onwards counts towards Jackie’s pension and I need at least two years service from then on before she’d get anything at all, so it will be years before she would get anything like enough to live on.
When you get down to the detail, it could be years before an unmarried partner will get a reasonable pension.
I can buy her extra pension based on my 10 years before 1 January 2007, but that will cost - for example, I could pay £900 a year for the next eight years or a lump sum of about £7,000 (less after tax relief).
So there’s the dilemma - do I shell out this money which I can’t really afford or do we take a gamble that everything will be OK for us?”
Graham, Devon
Did you know?
Typically pension schemes will pay a pension to your unmarried partner, as long as you meet particular conditions - for example, you may need to nominate you partner, they may need to be partly or wholly financially dependent on you, you may need to have been together for at least two years, and the pension might be based only on your service from a set date. Check the rules for your scheme.
