Transfer advice – dependant’s benefits

Regular readers will know that we have published a series of articles by Paul Clark of Russelldene Consulting over the last few months related to the very topical subject of advice on pension transfers.

In this article, Paul shares some thoughts about …

Dependant’s benefits

There are two issues here that can impact upon the suitability of DB transfer advice

“Widows” Pension

Many advisers work on the basis that a spouse of a deferred member will automatically benefit from pension payable to a surviving spouse/civil partner. However, that is not necessarily always the case.

The statutory definition of a dependant can be found in the Pensions Tax Manual page PTM000001 but is broadly defined as:

  • Someone married to, or in a civil partnership with, the member at the date of their death. It can also include someone who was married to, or in a civil partnership with, the member when they crystallised benefits.
  • A child of the member who has either not attained age 23, or has attained age 23, but is dependent upon the deceased member through a physical or mental impairment.
  • Someone who is not a child of the member, nor a surviving spouse or civil partner, but who, in the eyes of the scheme administrator was at the date of the member’s death:
    • financially dependent on the member,
    • in a financial relationship with the member that was one of mutual dependence, or
    • dependent on the member because of physical or mental impairment.

As can be seen the definition can be very wide. DB schemes will rarely offer as generous a definition as this. It is important to check what the scheme rules say on the matter. For example, to receive a widow(er)’s pension, the surviving spouse may have to have been married to the member, not just at the date of death but also at the date benefits commenced or even at the date of leaving service. Obviously in the latter case the likelihood is that the dependant’s pension may not actually ever become payable.

Advising a client not to transfer due to the potential death benefits, which in the end turn out to be unavailable, is just as likely to result in a complaint as recommending a transfer that goes wrong.

Children’s Pension

Along similar lines is the aspect of children’s pensions. Often, children’s pensions are overlooked by advisers considering a DB transfer. Some clients will not distinguish between their natural children, step children and adopted children. It is important to ascertain from the scheme rules as to the eligibility requirements for a child to potentially receive a pension on their parent’s death. Also, it is critical to understand for how long the pension is payable. Does your pension transfer fact-find ask for the spouse’s date of marriage? Perhaps it should?

Remember, where a child is dependant due to a physical or mental impairment, the pension can, at least as far as the legislation is concerned, continue beyond the child’s 23rd birthday. Not only is it important to understand the scheme rules, but also to ascertain in the fact-find whether any of the children potentially fall into that definition.

The capitalised value of these will need to be shown in the TVAR output.

Important Note: ATEB news is intended to provide general information ONLY. The content, including any views expressed or guidance provided, does not replace the need to comply fully with FCA Rules and Guidance. Unless you have discussed news article content with ATEB, and specifically how it relates to your circumstances, then ATEB disclaims all liability and responsibility and actions arising from any reliance placed upon it. For the avoidance of doubt therefore, any reliance you place on such information without our consultation is at your own risk.

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Our View

Yet again, the devil is in the detail where transfer advice is concerned. Not all schemes are the same and not all clients are the same. Advisers need to ensure that they understand the basis of benefits in the actual scheme and how those apply to the client’s situation.

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For information only.

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About the Author

Technical Manager - Often referred to as the Oracle or the Sage, Alistair has a wealth of financial services experience. He is our go-to Technical Manager and enjoys nothing more than a complicated conundrum. Feel free to test his renowned knowledge by getting in touch.

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