Pre-retirees fail to make provisions for partners: Aegon

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Pre-retirees fail to make provisions for partners: Aegon

An increasing number of people are not making any provision for pension payments to continue to their other halves in the event of their death, according to research by Aegon UK.

According to Aegon these findings, coupled with the recent changes to state pension rules, highlight the risk of a shortfall in retirement income for the bereaved that is likely to grow if couples don’t plan their retirement finances together.

According to the survey, the majority of people aged 75 and over - 75 per cent - have made pension provision for a spouse.

But this falls to only 47 per cent of those aged 45-54, suggesting a generational shift away from such provision.

A total of 25 per cent said their spouse had no pension of their own, leaving many without financial backing for the future before auto-enrolment has been bedded in.

Kate Smith, head of pensions at Aegon, said the fact the majority of those above age 75 have pension provisions for a spouse was probably down to common practice in defined benefit schemes, meaning this generation did not have to make a conscious decision.

She said: “Historically, company defined benefit and state pension payments would continue to a partner on the death of the individual.

“However, with the shift away from defined benefit and with changes to state pensions meaning a partner will no longer receive a survivor pension, these findings suggesting younger and future generations of retirees are less likely to provide for their spouse are worrying.”

Ms Smith said the current generation of defined contribution savers have to plan their pensions together more than previous generations.

State pension changes no longer continue to a surviving spouse because the new payment is based on individual National Insurance contribution records.

Recent reforms also make the issue of pensions and divorce significantly more complicated, it has been claimed.

Former pensions minister Steve Webb claimed there was an estimated £3bn of unclaimed benefits are sitting in pension pots across the UK because widows had lost track of their spouse’s pension.

Alan Chan, director at IFS Wealth and Pensions, said most people tend to overestimate their provisions and think their spouse and, perhaps children, will be miraculously OK in the event of their death.

He said: “Even with simple precautions like having a will or having a sufficient level of life insurance - the average person is underinsured and some people don’t even have mortgage protection if they died, and could potentially leave their families in severe financial difficulty.

“I agree that, in the past, people have not really had to make a conscious decision about what type of benefits their spouse will have when they die because this was all done for them in the traditional defined benefit schemes.

“Nowadays, with defined contribution pensions becoming more of the norm, a lot of this responsibility has shifted from the employer to the individuals, whether it be nominating death benefits, investment choice, pension provider and I think the general public are not well equipped to deal with this and more education is needed..”

Aegon’s survey was carried out by Censuswide between 9 May and 13 May 2016 from a sample of 2016.

ruth.gillbe@ft.com