Financial security for your spouse – 5 clever ways to provide it if you die
January 2022
If you’re creating a financial plan as a couple, you should always consider the financial consequences of one of you passing away. If one person’s income or assets are vital for the household’s financial security, their death could leave the other person in financial difficulty.
Because of this, you might be asking yourself if your partner or spouse will be financially secure if you pass away. Of course, this is a difficult topic to discuss. That said, doing so could help you put a plan in place that gives you the confidence that your nearest and dearest will be able to maintain their lifestyle should anything happen to you.
That’s why financial planning as a couple can help you understand scenarios that could cause financial stress and take steps to minimise financial insecurity. Read on to discover five steps that could improve their security.
1. Write your will
If you haven’t already, writing your will should be a priority, especially if you’re not married or in a civil partnership. “Common-law” partners have no legal right to inherit in the UK, no matter how long you’ve been cohabiting.
A will is the only way to make sure your assets are passed on according to your wishes. Despite this, data from Will Aid shows that 49% of UK adults have not made a will.
Without a will, your assets will be distributed according to intestacy rules. This could be very different to your preferences.
Even if you’re married or in a civil partnership, you should still have a will in place. Under intestacy rules, if your estate is worth more than £270,000 and you have surviving children, grandchildren, or great-grandchildren, your partner will inherit:
- All personal property and belongings of the person who has died
- The first £270,000 of the estate
- Half of the remaining estate.
As this may not align with your wishes, it’s important to set out what you’d like to happen.
2. Complete an expression of wishes for your pension
Your pension may be one of the largest assets you own, but it’s not covered by a will. Instead, you must use an expression of wishes form to name the person you’d like to benefit from your defined contribution (DC) pension. This covers investments that remain within a pension, but does not cover withdrawals you have already made or an annuity.
If you have not updated your expression of wishes, your pension will go to the person named, and they might not be the person you would like to receive it. If you have multiple DC pensions, you will need to complete an expression of wishes for each one.
If you pass away, your partner will be able to choose how and when they access the money within your pension. Subject to your age at death, your spouse or partner may receive your pension tax-free or be subject to Income Tax .
They could take a lump sum from it or use the pension to create an income.
3. Review any defined benefit (DB) pensions you have
A DB pension, which is also known as a “final salary pension”, pays a guaranteed income from your retirement date to your death. Many DB pensions will then continue to pay a pension to your spouse, civil partner or dependents if you pass away, giving them financial security and peace of mind.
You should make sure you understand how much your partner would receive from the DB pension if you passed away, and ensure that any necessary paperwork is complete.
4. Purchase a joint annuity in retirement
An annuity is something you purchase to create an income for you and a spouse for the rest of your life. If you die first, typically it will provide an income for your surviving partner until they pass away.
In some circumstances, it might be something you want to consider, as it provides a guaranteed income and means you don’t need to worry about your pension’s investment performance.
That said, an annuity is just one way to access your pension and it can be inflexible. For example, it doesn’t allow you to take a higher or lower income (and the latter may have taxation implications if your situation changes and you have an additional income).
While it might be a shrewd move in terms of guaranteeing an income for your spouse or partner, care should always be taken before buying one. Speak to your financial planner to confirm whether it might be right for you, whether it could carry tax implications, and any other ways to access your retirement fund that might be more suitable.
5. Take out a life insurance policy
A life insurance policy will pay out a lump sum on your death to a beneficiary. It can provide financial security in both the short and long term. You will need to make regular payments to the policy, or the cover will lapse.
You can choose between a term life insurance policy or a whole-of-life insurance policy.
A term life insurance policy runs for a defined period. This might be useful if you’re worried about how your partner would cope with certain financial commitments, such as your mortgage.
A whole-of-life insurance policy will run until you pass away. You can choose the level of cover and who will receive the lump sum.
Get in touch
If you would like to discuss this or other ways you could ensure your partner, spouse or other family members are financially secure, contact your financial planner directly. Alternatively, contact us below.
Please note
This blog is for general information only and does not constitute advice. Please do not act based on anything you might read in this article. The information is aimed at retail clients only and contents are based on our understanding of HMRC legislation, which is subject to change.
A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future results.
The tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates and tax legislation may change in subsequent Finance Acts.
The Financial Conduct Authority does not regulate will writing or estate planning.