Buzz,
The unfortunate answer is YES she loses ALL State benefits!!... Which is why those in your position should weigh up the advantages and disadvantages of marrying outside of China!! Think about counties such as Malaysia, Japan Thailand etc to get married. That is one situation that Lucy will not have to endure when we tie the knot in Cyprus, we have sorted that side of things out already, and know exactly what we are doing. hahaha!!
When you think that these ladies have worked all there lives, to be entitled to that pension, and it can be stolen by the government at a stroke, ...it's not a good situation at all!!!
If you do marry outside of China, she must never tell any official body that she is married. They will stop her pension and any other benefits she may be entitled too. She can still renew her passport wherever she is living, just by using her present details... It is not against any law in China to have to state your marital status, ...that was the last i heard anyway. Even if it is, i'd still encourage Lucy or any other woman to say nothing, why should the State steal money that is rightfully theirs!!!!
Additionally, further to what Willy has stated, Just have her pension paid direct to her account, and leave it there making interest and collect it when she next visits China. It's not difficult to get around these things, it just needs a little thought or as i would call it, ....a little ''ducking and diving''. It's what I've been realising for some time now, it just doesn't pay to be honest with officialdom, because if you are, they'll screw you at every turn!! ......
David....