A significant number of state pensioners are benefiting from large payments through a Department for Work and Pensions (DWP) inheritance rule, with over 500,000 pensioners receiving more than £5,000 a year through inherited State Earnings-Related Pension Scheme (SERPS) payments.
This hidden benefit, although no longer available to new claimants, is enhancing the retirement income of many surviving spouses and civil partners.
How Does the SERPS Inheritance Work?
The State Earnings-Related Pension Scheme (SERPS) was part of the UK’s state pension system before it was abolished in April 2016, replaced by the new state pension system. Under the old scheme, employees could build up an additional pension entitlement based on their earnings.
Following the scheme’s closure, surviving spouses or civil partners were allowed to inherit part of their deceased partner’s SERPS entitlement, potentially adding significant amounts to their state pension.
- Inheritable Benefits: Surviving spouses and civil partners are eligible to inherit at least 50% of certain state pension benefits. For the 2024/25 tax year, this can be as much as £11,356, boosting their overall income in addition to their own state pension.
- Maximum Payment: In some cases, the inherited pension can boost the state pension to as much as £22,858 annually.
The amount inherited depends on the deceased partner’s state pension entitlement and the age at which they passed away. The DWP’s data reveals that this inheritance is having a significant impact on the finances of many pensioners, particularly those who have lost a spouse or civil partner.
Statistics on SERPS Inheritance Payments
According to the DWP’s figures, more than 2 million pensioners received a payment from SERPS in the 2023/24 tax year, with over 540,000 pensioners receiving more than £5,000 annually from inherited payments. The data also highlights that 17,460 pensioners received over £10,000 per year from SERPS inheritance.
- Average Payment: The average SERPS payment for the year was £3,377 annually.
- Large Inheritances: Some pensioners are benefitting greatly, with a select group receiving over £10,000 annually from inherited SERPS payments.
Why This Matters
Sarah Pennells, a consumer finance specialist at Royal London, points out the significant difference inheriting a SERPS pension can make to a retired individual’s finances. These additional payments can ease the financial pressures many pensioners face, especially those with limited income in retirement.
However, Pennells also warns that many people may be missing out on these payments due to a lack of understanding about the inheritance rules. The legacy of the SERPS system, even though it was replaced in 2016, continues to impact retirees today, and understanding how to claim these benefits is crucial for boosting retirement income.
Who Is Affected?
- Surviving Spouses and Civil Partners: Those who were married or in a civil partnership with someone who contributed to the SERPS scheme before it ended in 2016 are eligible to inherit a portion of their partner’s state pension entitlement.
- New State Pension System: While the old SERPS system is no longer available to new claimants, those who were previously enrolled can still benefit from these inherited payments.
The SERPS inheritance rule is providing a valuable financial boost to over half a million pensioners, some of whom are receiving as much as £5,000 or more annually from these inherited benefits.
As pensioners continue to adapt to the new state pension system introduced in 2016, understanding the legacy of the SERPS system is essential for ensuring that eligible individuals maximize their retirement income.
FAQs:
1. What is the SERPS inheritance rule?
The SERPS inheritance rule allows surviving spouses and civil partners to inherit a portion of their deceased partner’s state pension, potentially boosting their retirement income.
2. How much can pensioners inherit from SERPS?
Pensioners can inherit up to 50% of certain state pension benefits, with a maximum of £11,356 for the 2024/25 tax year, potentially raising their total state pension to £22,858 annually.
3. How many pensioners are benefiting from SERPS inheritance?
Over 2 million pensioners received SERPS payments in 2023/24, with more than 540,000 receiving over £5,000 annually.
4. Who is eligible to inherit from SERPS?
Surviving spouses and civil partners of individuals who contributed to the SERPS before it was replaced in 2016 are eligible to inherit part of their partner’s pension.
5. How much is the average SERPS inheritance payment?
The average annual inherited SERPS payment for 2023/24 was £3,377.
