Pensions are vital to think about on an individual basis, but they're just as important to consider if you're coupled up. After all, pensions are an essential part of long-term financial planning for both partners – yet unfortunately, research shows that many pre-retirees are failing to give it the attention it deserves.
Lack of pension provision
New research from Aegon has found that a growing number of couples aren't making any provision for pension payments to continue to their partners in the event of their death, which means many retirees could one day be facing financial pressure on top of an already difficult time.
The figures show that 75% of over-75s have made such provision for their spouse, but this falls to 47% among the 45-54 age group. Even more worryingly, 25% of respondents said that their partner has no pension of their own, further highlighting the importance of forward planning. How would those retirees cope financially if the worst were to happen?
While it's hoped that automatic enrolment will at least mean that more people will have their own pension in the future, difficulties could still remain if the partner with the larger pension didn't make suitable provision for their spouse. It could lead to a dramatic fall in retirement income for the bereaved, and coupled with the recent changes to state pension rules – whereby state pension payments will no longer continue to the surviving spouse – the risk is only getting greater.
Plan your finances
The research highlights the importance of couples planning their retirement finances together, and this should extend to considering what would happen, in financial terms at least, to the surviving partner.
Indeed, the fact that so many over-75s have made pension provision for their spouses is probably down to the fact that many have defined benefit schemes, which means they didn't have to make any conscious decisions about such matters. Kate Smith, head of pensions at Aegon, explains:
"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 that younger and future generations of retirees are less likely to provide for their spouse are worrying.
"The current generation of defined contribution savers have to plan their pensions together more than previous generations. In some cases, each partner will be building up their own pension and this trend is likely to increase as automatic enrolment brings millions more into workplace pensions. However, for some, their workplace pension will be very modest and self-employed or non-working spouses won't benefit in this way.
"As a couple your finances become intertwined from an early stage – joint bank accounts and joint mortgages form the basis of many "financial" partnerships. But for those planning to grow old together, it's important to consider the adequacy of retirement income for both partners including the financial consequences when one of you dies.
"The closer you get to retirement, the more you need to begin to plan your retirement finances in tandem. One of the main benefits of reviewing your retirement plans as a couple, is to ensure that should something happen to you, your partner will be provided for and won't end up reliant on a less than generous state pension."
It's vital that couples begin planning retirement finances together rather than in isolation, and this can include anything from annuities (would you consider a joint life annuity so that payments continue after your death?) to drawdown, whereby partners can inherit any unused funds. Given the importance of such decisions, it's vital to consult professional advice, so you can be confident that your partner will be looked after no matter what.
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