By 
Write to Kate with your pension problem: pensionsdoctor@Finance.co.uk. Columns are published twice a month on Tuesday mornings
Dear Kate,
I am approaching state pension age in six months’ time and I wondered what the position regarding my wife (55) would be if I died after January 2021 on inheriting my pension. Also, would my wife inherit my pension if I died before January 2021? I am entitled to the full state pension as I have paid National Insurance contributions in full as a self-employed proprietor.
Ian M
The state pension was overhauled in April 2016 and this included radical changes to the death benefits payable. Anyone reaching their state pension age after this date will receive the new state pension. This applies to you as you will be reaching your SPA of 66 in January 2021.
The full new state pension is currently £175.20 a week. What you’ll get depends on your National Insurance contribution record when you reach SPA. You mentioned that you’re entitled to the full amount as you paid full NICs as a self-employed proprietor. I’m therefore assuming that you have at least 35 qualifying years of NICs.
An important change in the new system was the introduction of a "single tier" instead of the old "basic" and additional tiers.
You’ve asked if your wife will be able to inherit your state pension on your death. There’s a useful government tool which will help you to understand whether the state pension is inheritable based on your personal circumstances, but I’ll also cover the general principles below.
Inheriting the state pension – if you die after state pension age
Those reaching SPA from 6 April 2016 onwards only build up state pension based on their own NI record. The bad news is this means the "new" state pension is not inheritable.
This is very different from the death benefits payable under the old state pension rules for those people who reached SPA before 6 April 2016, which were much more generous. Here, some state pension entitlements, based on the deceased person’s NIC record can be passed onto their spouse or civil partner.
For example, it’s generally possible for a spouse or civil partner to have their basic state pension increased if this is lower than the amount the deceased was receiving. They may also be entitled to a percentage of any additional state pension the deceased had accrued. Unfortunately, this isn’t the case under the new state pension rules.
As you made NICs before April 2016 under the old rules, your state pension may be affected by complex transitional rules, designed to make sure no-one loses out by getting less under the new state pension than they were entitled to under the old state pension rules.
Pension Pot Calculator 2019
Everyone with an NIC record as at 6 April 2016 is given a one-off starting amount, where the old state pension rules are compared to the new rules, with entitlement being based on the higher amount. If the starting amount is equal to or lower than the full new state pension, then there would be no inherited amount on death.
However, if the starting amount is above the full new state pension, the difference, known as a "protected payment", will be paid on top of a person’s new state pension when they reach their SPA. Half of any protected payment can also be inherited on death, with the inherited amount only becoming payable when the spouse or civil partner reaches their own SPA. This would also be on the provision that the recipient hadn’t married or formed a civil partnership before their SPA.
A person is only likely to have a protected payment through being employed for all or part of their working life and having earnings that would have built up an entitlement to an additional state pension.
As you have indicated that you were self-employed all your working life and therefore paid Class 2 NICs to build up entitlement to a state pension, it’s unlikely that you will have a protected payment. This means that your wife wouldn’t be able to inherit any of your state pension.
All this is extremely complicated, so it’s worth checking with the Department for Work and Pensions what your state pension entitlement is and whether anything would be payable to your wife. If you haven’t done so already, I suggest you go online and request a state pension forecast.
Ask Kate a question | The Telegraph’s pensions doctor
Your wife’s state pension entitlement
It’s really important that your wife finds out more about her own entitlement to the state pension, based on her own NIC record.
Normally NICs are paid when someone is working, whether they’re employed or self-employed, but it’s also possible to build up NIC credits for time spent out of the workplace, such as when claiming state benefits as a carer. Based on her own NIC record, your wife may find she’s entitled to a full or reduced amount of the new state pension, payable from her own SPA.
On your death, she may also be entitled to receive bereavement benefits from the state.
Inheriting private pensions
Your wife may be able to inherit any private pension you’ve built up. As a self-employed person, you are only likely to have an annuity, a stakeholder pension or a personal pension.
The options available on your death will depend on the rules that apply to each private pension you hold. Generally, you will find that benefits could be paid as a lump sum, as an annuity or there could be an option for funds to be passed on to your wife or other beneficiaries in a "drawdown" account.
Reader Service: Try our Pension Advice Service today and get a free recommendation on whether we can improve your pensions. Capital at risk.
I suggest you contact your pension provider(s) and find out about the death benefits available.
Comments