Select Committee on Public Accounts Fifth Report


APPENDIX 1

THE SOCIAL SECURITY (INHERITED SERPS) REGULATIONS 2001 (PAC/2000-2001/55)

NOTE BY THE DEPARTMENT OF SOCIAL SECURITY

The proposals

1.  The Government proposes that from 6 October 2002, a new rule will apply on the amount of SERPS that a surviving spouse may "inherit" on the death of their spouse.

2.  The proposals are as follows:

  • Nobody who is widowed before 6 October 2002 will be affected by the new rule. They will therefore inherit up to 100 per cent of their deceased spouse's SERPS.[35]

  • If someone is due to reach state pension age before 6 October 2002, when they die their surviving spouse can inherit up to 100 per cent of their SERPS.

  • If someone is due to reach state pension age after 5 October 2002 but before 6 October 2010, when they die their surviving spouse will inherit a maximum of between 90 per cent and 60 per cent of their SERPS. The exact amount will depend on when, in this period, the deceased person reached state pension age.

  • If someone is due to reach state pension age on or after 6 October 2010, when they die, their surviving spouse will inherit up to 50 per cent of their SERPS.

3.  The table below sets out how the Government proposes the new scheme will operate:

Max % SERPS entitlement for surviving spouse
Date when contributor reaches state pension age
Date of birth of contributor:
  
  
Men
Women
100%
5.10.2002 or earlier
5.10.37 or earlier
5.10.42 or earlier
90%
6.10.2002—5.10.04
6.10.1937—5.10.39
6.10.1942—5.10.44
80%
6.10.2004—5.10.06
6.10.1939—5.10.41
6.10.1944—5.10.46
70%
6.10.2006—5.10.08
6.10.1941—5.10.43
6.10.1946—5.10.48
60%
6.10.2008—5.10.10
6.10.1943—5.10.45
6.10.1948—5.07.50
50%
6.10.2010 or later
6.10.1945 or later
6.07.1950 or later

4. The phasing-in period overlaps at the end with the start of the taper that leads to equalisation of state pension age. This means that the 60% tranche will be the widowers of those women who are 60 between 6 October 2008 and 5 July 2010 (rather than 5 October 2010). So the band is a few months narrower for men than for women.

5. The percentages shown in the Schedule to the regulations are different to the percentages in the table above. That is because the percentages in the Schedule show the amount by which the inheritance will have to be increased from the 50 per cent base in order to produce the final figure in the above table.

6. The maximum amount of State Second Pension that a surviving husband or wife can inherit will be 50 per cent.


Background

7. The reduction in the amount of SERPS which can be inherited by surviving spouse from 100% to 50% is part of a package of measures introduced by the Social Security Act 1986 to reduce overall expenditure on SERPS and was to come into effect on 6 April 2000. It was designed to bring SERPS into line with most occupational pension schemes, where it is usual for half occupational pension rights to be inherited by a surviving spouse. The reduction mostly affects widows. There will be some change to this situation with the introduction of the new bereavement benefit package.

8. However, information about the change did not appear in DSS leaflets after 1986 until April 1996. People who made specific enquiries about how much pension their spouse would inherit on their death were sometimes told they could inherit all of it without it being pointed out that if they died after the 5 April 2000 different rules would apply.

9. No one has yet suffered financial loss, because the change was not due to take effect until 6 April 2000 and has now been postponed until 6 October 2002.

The purpose of the change

10. The purpose of the change is to reduce the amount of SERPS that can be inherited from a maximum of 100 per cent to a maximum of 50%, but in a way which is fair and allows people sufficient time to make appropriate plans for their future.

The impact of the change

11. The change will mean that:

  • No-one who is a pensioner now will be affected.

  • No-one who reaches state pension age before 6 October 2002 will be affected.

  • People who reach state pension age between 6 October 2002 and 5 October 2010, will only be able to leave between 90% and 60% to their surviving spouse, reducing on a sliding scale.

  • People who reach state pension age on or after 6 October 2010 will only be able to leave up to 50% of their SERPS to their surviving spouse when they die.

Timing

12. The intention is to lay the regulations before Parliament in the new year.

Costs

13. The total costs over 50 years will be £12 billion.

Numbers affected

14. The package will provide protection for over one and a half million widows and widowers over the next 10 years.

20 December 2000


35   We talk in terms of "up to X%" because when adding together a person's own SERPS entitlement and inherited amount of SERPS, the sum cannot be more than the prescribed maximum payable to a surviving spouse. Back


 
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