To aggravate the matter, widows may experience a 24 per cent drop in household income upon their spouse’s death – even when lower household costs are factored in.
This pre-2016 system meant that women who were receiving a lower pension would inherit their husband’s pension when he died to top up their own payments.
However, the new system has absolutely no inheritance rights for spouses. It is based entirely upon personal contributions and generally women will be unable to claim on their spouse’s fund.
With older couples who have separated, we sometimes find that they have not issued divorce proceedings before one of them passes. From a financial perspective, it is worth noting the following main principles which may have an impact on those considering getting a divorce:
According to the Office for National Statistics, between 1998-2018, more than 100,000 women aged 60 or over divorced. Most of these women had reached the state pension age before 6 April 2016 and therefore fall under the old state pension rules, which make significant provision for divorced women.
However, if they obtained a divorce after the state pension age, then they were only able to benefit from a pension uplift if they notified the Department for Work and Pensions of their divorce.
Many women may not have been aware of this, meaning they lost out on their pension uplift, which may be in excess of £50,000. Any woman who reached pension age before 6 April 2016, and later divorced, should contact the Department for Work and Pensions if she is not on a full basic state pension as they may be entitled to an increase based on their ex-husband’s contributions.
Under the old pension rules, a married woman who divorced could substitute her former husband’s National Insurance record for her own up to the date of their divorce for the purposes of working out their basic state pension. More often than not, this resulted in a significant uplift which over the course of, say, a 20-year retirement, could amount to more than £50,000.
For women who divorced but did not remarry before state pension age, any substitution based on their former husband’s National Insurance records should have taken place when she claimed her state pension. However, for women who got divorced post-retirement, there is no automatic process for an uplift to take place.
The change in the pension arrangement means that there is now a single-tiered pension, and the bill was named “A simple foundation for saving”. The flat-rate pension of a maximum of £179.60 (in 2020/21) per week will replace the old three-tier system of the basic state pension, the additional state pension and graduated pension.