Can you inherit a State Pension?

Pensions are more complicated than you might think. Whilst the Old Age Pension (now the Basic State Pension) has been around since 1909, there are also the New State Pension (introduced in 2016), the State Earnings Related Pension Scheme (“SERPS”), the Second State Pension (“SSP” or “S2P”), and protected rights to consider. These are the things to understand around inheriting a State pension.

What were SERPS and SSP?

SERPS was introduced in 1978 and allowed people to increase their state pension by paying higher National Insurance (NI) contributions. It was replaced by the SSP in 2002 and the scheme ran until 2016. The objective was to allow employees to increase their state pension income by building up an ‘additional state pension’, based on their level of earnings over their working life.

Read more: The history of the State Pension | Charles Stanley (charles-stanley.co.uk)

However, it was possible to opt out of SERPS (known as ‘contracting out’) and have the additional NI contributions re-directed to an alternative pension plan. This was known as a ‘protected rights pension’ which offered ‘protected payments’. The idea was that investing the money over a long period of time had the potential to provide a better retirement income.

Some companies offered their employees the choice to opt out. Some opted people out automatically, especially from defined benefit schemes. Some fluctuated between years of opting their staff out, and years of opting them back in again depending on guidance from the scheme’s advisers.

This means that if you were working between 1978 and 2016, you may have been contracted out for some of this time. Because of this it makes it difficult to work out if you or your late spouse/civil partner have additional rights under SERPs, SSP/S2P and/or ‘protected rights’.

Why does this affect inheriting my spouse’s State Pension?

The rules are pretty complicated but in general, if you and your spouse or civil partner retired on or before 5^th April 2016, the inheritance rules are more generous than for those who retired on or after 6^th April 2016.

• If your spouse or civil partner reached State Pension age before 6 April 2016, you may be able to inherit some of their State Pension when they die. You can check the inheritance you might be entitled to based on their National Insurance contributions; the government website advises contacting the Pension Service to check what you can claim.
• If your spouse or civil partner topped up their State Pension (between 12 October 2015 and 5 April 2017), you may be able to inherit some or all of their Additional State Pension.
• You can claim between 50% and 100% of their protected payments depending on their gender and when they were born.
• If your spouse or civil partner had decided to put off taking (“deferred”) their State Pension, you might inherit part or all of their extra State Pension, or a lump sum, even if they had since started claiming. If they deferred for less than 12 months you will not be eligible for a lump sum, but you can claim extra State Pension.

If your spouse or civil partner died on or after 6^th April 2016 and your marriage or civil partnership with them began before 6 April 2016:

• You’ll inherit half of your partner’s protected payment from contracting out of SERPS/SSP.

Is there anything else I need to know?

You had to be married to them or in a civil partnership with them at their death to make a claim. If you were divorced or had your civil partnership dissolved, then you cannot make a claim on their State Pension, unless pension sharing was part of the court settlement.

Depending on what the courts decide, either you’ll get an extra payment on top of your State Pension or you could be ordered to share your Additional State Pension or protected payment with your partner.

It also depends on your late partner’s National Insurance contributions.