Hilary Salt says we should look again at whether DB schemes should provide a partner pension given the vast social changes over recent decades
Defined benefit (DB) schemes generally provide a partner pension payable after the member's death - often at the rate of 50% of the member's pension. It's easy to see historically why a widow's pension was necessary. In the 1950s, with female participation in the workforce low and many working women excluded from schemes - either because they were women (yes really!) or because they worked part time, it was important that a working man's pension continued after his death to his generally unpensioned wife.
But a lot has changed since then. Many women spend only short periods out of the workplace, part-time workers aren't excluded from schemes and discrimination on the grounds of gender in the workplace is outlawed.
And DB schemes have changed too with either legal requirements or societal norms meaning many now provide a partner's pension for an expanded cast: widowers, same sex partners, civil partners and in some schemes co-habitees.
Providing a benefit for civil partners is particularly interesting. There is the potential for this to result in an unexpected cost pressure for schemes. There is no reason why any two unrelated people cannot enter into a civil partnership - as there is no requirement for them to be in a relationship akin to marriage. And civil partnerships need no form of ceremony and are not vulnerable to being ended on the grounds of adultery. So is it not sensible planning for a widowed man (or woman) to enter into a civil partnership with his neighbour who does the shopping for him or a close but unrelated friend?
The value members place on partner pensions is also perhaps changing. Single members of schemes often argue that they won't benefit from a spouse's pension so should pay lower contributions. And some members perhaps have a slight suspicion that their spouse at the time they accrue benefits may not be their spouse when they retire - so the value they place on that benefit may be low.
Of course, there's nothing we can do about partner benefits already accrued. But for those schemes still open to accrual who are looking to reduce costs but maintain good quality benefits, is it time to look again at whether we should provide a partner pension?
My own view is that it is. Those who studied history might remember the concept of a family wage - a wage paid to a man but sufficient to raise a family. John Stuart Mill, the English political philosopher and economist, argued that "the man's wages must be at least sufficient to support himself, a wife, and a number of children adequate to keep up the population" because after all "It cannot … be considered desirable as a permanent element in the condition of a labouring class, that the mother of a family … should be under the necessity of working for subsistence, at least elsewhere than in the place of their abode". Perhaps unsurprisingly radical feminism challenged these views and the argument for a family wage has receded.
But it seems that there is still a hankering for a family pension. When redesigning a scheme recently, we suggested two options: an accrual rate of 1/70th with a partner pension or a 1/65th accrual rate without a partner pension - that's an accrual rate 7.5% higher. To my surprise, there was little support for the higher accrual option, with the consensus being that removing partner pensions seems cruel and heartless - something the employer really didn't want to be seen to be doing.
It seems that despite lots of social change, there is still strong desire to avoid being in the position where anyone can say, as Dickens so eloquently put it, that "You snatch your tripe, my friend, out of the mouths of widows and orphans."
Hilary Salt is founder of First Actuarial
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