Retired women who lose their husbands now face a bigger drop in living standards than previous generations, research shows.
The way modern pensions work means if the husband passes away first, that more women will be worse-off than they would pre-2016. But taking action early means a better retirement.
Pension experts LCP are now urging recently-retired couples and those approaching retirement to check their financial situations.
Before 2016, the state pension system gave women pensions based on the contributions of their husband, whether alive or dead. But after 2016 the current system kicked in, which is meant to make sure everyone gets a decent state pension in their own right.
The new system is better for women who claim it while their husbands are still alive.
The full state pension is currently £179.60 a week while the older basic state pension maxes out at £137.60 a week.
But under the new rules, if a man dies his wife generally gets none of his state pension, or very little. This means that her standard of living could fall much more sharply when her husband dies than under the old rules.
Not only that, but fewer people are now retiring with generous 'final salary' pensions. These were once very common, especially in the public sector.
In the past, these pensions often provided generous widow’s pensions when the husband died. But new pension provision is increasingly in the form of ‘pot of money’ or a defined contribution pension where there is no ongoing pension.
Although the widow may inherit anything in the pension pot when her husband dies, if he passes away later in retirement the pot may have been run down to a low level.
LCP research finds that under the old system the woman’s standard of living drops by around 9% when her husband dies, but under the new system her standard of living drops by around 24%.
Steve Webb, LCP partner and former pensions minister, said: "Coping with bereavement is hard enough, but coping with a sharp fall in living standards thereafter is even tougher.
"Newly retired couples and those coming up to retirement need to find out where they would stand with state and private pensions if one of them were to die and to explore making additional provision to cushion the financial impact of bereavement."
Similar issues can affect men who become widowers, but they are more likely than women to have larger pensions of their own to support them after a bereavement.
Men are also more likely to die years before women born at the same time, which tends to mean wives outlive husbands in heterosexual relationships.
What to do to protect your pension
One financial planner encouraged people to realize how long their retirement finances may need to last, and what deals might be best for the surviving spouse, there is a 50% chance that one of a couple retiring now will live into their nineties.
On that basis it is prudent for a couple to treat all wealth and assets as family assets in retirement, and where there is the choice to buy an annuity a joint life annuity should be the default option.
Whilst a single life annuity will be the cheapest option, and is usually the first quote you are shown, it does not secure an income for your spouse after you are gone.
Another option to give an income to the surviving spouse is to take out a level term assurance policy.
To find the best option for you and your family, contact me, I will be happy to help with whatever questions you may have.
Rob.
E:robert.gourlay@holbornassets.com T:(+6)01151565649 W:www.rgwealthsolutions.com
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