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Money Talk

Q I am a 63-year-old widow who taught for just over 20 years. On retirement I received a lump sum of Pounds 15,000 and now have a pension of nearly Pounds 5,000 a year plus a monthly sum from my husband's pension scheme.

Now, however, I have discovered, following a little prompting from a friend, that my own pension offers a benefit I do not need - the promise of a pension for my late husband in the event of my death! Is it right that people in my position should always opt for a single life pension that ends when the policy-holder dies? And if it is, why did no one tell me this before?

A Most defined benefit occupational pension schemes provide a widow'swidower's pension in the event of the death of a member before or after retirement. This does mean that a widowed member such as yourself might obtain a better pension if, on retirement, you opt for a single life pension.

The way this works is that, just before retirement, you transfer your occupational pension scheme benefits into a personal pension plan and immediately purchase a single life pension from an insurance company with the plan proceeds.

However, you do need to be careful that, overall, your benefits from the personal pension will be as good value for money as those from the scheme. For example, the tax-free cash sum, Pounds 15,000 in your case, might be lower under a personal pension.

You need to make sure that the single life pension you buy will have the same inflation protection as the scheme pension, for example, 5 per cent per annum increases.

And, should you die shortly after your retirement, your estate should receive some sort of return from the pension - most schemes guarantee the pension for five years, so if the member dies in year two, the estate receives a lump sum equivalent to three years' pension.

It is wise, if you are single, widowed or divorced, to take independent advice before you draw down a pension from an occupational scheme. The scheme administrators themselves probably will not know enough about your circumstances to give this kind of advice.

Andrew Warwick-Thompson is a lawyer who works for Bacon and Woodrow, the international firm of actuaries and consultants. Readers who wish to put questions to him (no names will be published) should write to: Personal Finance Desk, The TES, Admiral House, 66-68 East Smithfield, London E! 9XY (fax: 071 782 3200). No personal correspondence will be entered into and no legal liability will be accepted for the advice offered.

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