It is usual for occupational pension schemes to allow the spouse or partner of a scheme member to receive a reduced pension in the event that the member predeceases them. Normally, the appropriate beneficiary is set out in the scheme rules. With defined contribution schemes, such as Self-Invested Personal Pensions, the owner of the pension fund can choose to whom their pension pot is left by lodging a statement of choice with the pension scheme trustees. This latter arrangement can make pension scheme holdings useful tools in Inheritance Tax (IHT) planning as the pension passed on does not form part of a person’s estate for IHT purposes and no tax will be payable if the scheme owner dies before the age of 75.
It is important that pension scheme trustees consider their responsibilities in respect of dependants’ pensions carefully. In a recent case, the wife of a deceased pension scheme member complained to the Pensions Ombudsman that she had been deprived of her rightful pension when the scheme trustees decided to pay the dependant’s pension to his current partner. Although the woman no longer lived with him, she was still legally married to him.
No attempt had been made to establish whether either of the two women involved was financially dependent on the deceased scheme member or whether he was married.
The Pensions Ombudsman ordered the pension scheme trustees to reconsider their decision and to pay £500 in compensation to the man’s wife.