Move to new pension scheme but lose spouse pension benefit?

[sunfire]

I work for a large company and am lucky enough to earn a good salary.

My wife does not work full time as we have a disabled son but she works part time in her own business.

I'm currently in my employer's old defined contribution scheme. It contributes 9% of my salary into my pension. As a member of the scheme, I get a small fixed amount , which remains the same value each year to "buy" additional benefits like critical illness cover, health assessments, gym memberships, etc. If I die while working for them my wife would get a death benefit of 4 x my salary plus a spouse's pension of 30% of my salary.

I am considering whether to move to my employer's new defined contribution scheme.

Again they will pay in 9% but my death in service cover would increase to 8 x my salary. Also the money I have available for additional benefits would then be linked to my salary and I would get a much larger amount to spend on these. There is also the option in the new scheme of me paying percentages of my salary into my pension, which my employer would half match (i.e. if I put in 2% they would put in 1%, etc).

However I would lose the option of the spouse pension for my wife if I died in service in the new scheme.

If I moved to the new pension scheme I would not be allowed to move back to the old scheme if I changed my mind.

The reason I am thinking of moving to the new scheme is due to the very small amount of money available to buy other benefits under the old scheme which will never increase even if the cost of the additional benefits I want to buy will increase. At the moment I have to sell some days of annual leave, and overspend on the amount available for the additional benefits. The deficit is deducted monthly from my salary over the year.

My main concern about moving to the new scheme is the loss of the spouse pension for my wife. She has a small private pension fund from when she was working full time and would get the value of my pension fund whichever scheme I was in but I worry.....

What are people's opinions here: should I move to the new scheme and get the increased death in service cover and larger amount to spend on additional benefits or should I stay in the old scheme and retain the spouse pension?

Thanks.
S

Moving out of defined benefit is generally a very bad value move - have you looked at what it will mean in retirement?

Sorry - I misread I think, both schemes are DC?

what does your wife think?

I would take the additional benefits out of consideration for the moment and start by running the figures in both scenarios: how much would your wife get by investing the death in service sum of 4 per cent and using it to draw down or by adding to her current pension + 30 per cent spouse benefit; how much would she get from investing the 8 per cent.

It's difficult to say without the figures.

in answer to @enjoyingscience 's question my wife feels fine with losing the spouse pension given the situation with the additional benefits.

@hoorayandupsherises the extra 4 x death benefit would be about twice her current pension pot. Break even point - the benefit of having the spouse pension would outweigh the extra 4x death benefit - would be about 13 years.

Thanks to both of you for both of your responses. I'm leaning towards moving to the new scheme so I will be able to afford the additional benefits.

@sunfire are you sure your existing scheme is DC? I've never heard of a spouses pension linked to a DC scheme.

As @enjoyingscience says moving out of a DB scheme is not usually beneficial but employers want people to to reduce liabilities, hence enticements

In my experience, it's rare that a new pension scheme is better than the previous one - companies generally do this to save money....
So check all your calculations very carefully as there's no going back once you move

If I were your wife I would want a spouse’s pension. I knew a few people who sadly died young but only one or two whose partner benefited from the death in service payment. If you become terminally Ill you may not manage to stay in work until the end, even with sick leave. I had to make a decision on when to transfer to a new pension and stayed in the one that would pay DH 50% until I had to join the new one which only pays him one third. I know far more people in their 90s who depend on workplace pensions than those who die in service.

By the way, has your wife checked her state pension forecast and does she pay into her own pension?

New pension schemes are rarely better than the old ones they offer.

one place I worked tried to get us to move out of a final salary pension to a new one with lots of impressive graphs showing how much better it was.
but in the end the people who moved have crap pensions and the ones that kept the old ones are now being offered £200k over the pension pot value to more their pension,

@sunfire what did you do in the end? If you are still thinking, the way I would look at is like this:

Your wife would lose a pension of 30% x salary but gain an extra 4x lump sum (400% of salary). So in other words, the extra lump sum is very roughly equivalent to 13 years worth of the old pension - as you noted - plus as a couple you benefit from all of the other things that you get if you DON'T die in service i.e. the extra pension contributions etc.

The real question is therefore - could she manage with just 8x salary if you died? I suspect that's a lot of money and the answer is "yes" and if so moving seems to make sense. If you die she's still OK, and if you don't die (more likely) you both get to enjoy more.

@snowlaser In the end I decided to move to the new scheme and lose the spouse pensions for the reasons you mentioned.

The intention behind having 8X salary life cover is that your wife would use part of this to secure herself a pension, rather than have the scheme provide one.

Basically the choice is a lower lump sum on death plus a spouse's pension OR a higher lump sum and no spouse's pension.

I would stay in the current scheme and look at both of you paying for simple term life insurance as that would cheaply give big lump sums for smaller premiums.
it can be very hard to be be widowed and a guaranteed pension is a massive benefit when it would be difficult to work. State pensions are small and come due in our late 60s - having an extra pension would be a life saver.

You should have taken proper financial advice (paid for by your firm). Hopefully the spouse pension accrued to date remains. You’ve likely also given up very valuable guarantees with regards to inflationary increases.