Valentine’s Day is traditionally a time for romance and is often associated with marriage proposals and yet Office of National Statics figures show a long-term decline in marriage rates.
Reticence to tie the knot may end up costing money in the long term as cohabitees are often not afforded the same financial planning benefits as married couples or those in a civil partnership, writes Clare Moffat.
Here are some of the ways that hearts and flowers can also deliver £££s in the long run :-
Pension death benefits
Despite the pension flexibility changes introduced in 2015, it would be wrong to assume all pension schemes allow full flexibility and individual scheme rules must be checked.
Defined benefit schemes may have very rigid rules in terms of death benefits and, although a lump sum death benefit may be payable to whoever the scheme member nominates upon their death, if there is death before retirement age, any pension income benefits will usually only be payable to a spouse or civil partner and any other dependants, such as children under a specified age.
Defined contribution occupational schemes are often similar. It is not uncommon to see a lump sum death benefit that can be paid to whomever the scheme member nominates, regardless of their relationship status, but also an annuity purchased for a dependent only. A cohabitee may be covered if they are financially interdependent on the scheme member but that is not always the case.
Transferable nil-rate bands
The transferable nil-rate band and transferable residence nil-rate band are only available to those who are married or in a civil partnership.
For those who are married or in a civil partnership, depending on when the person became entitled to their state pension, on their death a surviving spouse/civil partner may be able to increase their own state pension benefits based on the deceased spouse’s pension entitlement.
If a person is married or in a civil partnership, and is currently earning less than £11,000 and their spouse or civil partner earns between £11,001 and £43,000, then £1,100 of the personal allowance can be transferred to the spouse or civil partner. Although this might not seem like much, it is a saving of up to £220 per year that is not available to cohabitees.
Should the relationship end, it can often be perceived that those who are married or in a civil partnership are financially worse off.
While this can be the case for the person who holds most of the assets, if a couple have cohabitated for a long time, some assets, such as property, may still be divided – especially if there are young children and one party gave up work or reduced their working hours to care for them.
For pension assets to be shared then, there must have been a marriage or civil partnership. Therefore, if a couple have cohabited for 20 years and one party has most of the pension assets, then they may be able to retain those pension assets.