If you’re living with your partner but you aren’t married, you don’t automatically have rights to each other’s assets if you break up or one of you dies, and this includes your retirement pots.
The law doesn’t give the same rights to cohabiting couples as married couples, despite this set-up being the fastest growing family type in the UK. The number of cohabiting couples has rocketed in recent decades, from 1.5m in 1996 to more than 3.6m in 2022, according to latest figures from the Office for National Statistics (ONS).
When it comes to pensions, you’re not entitled to any of your ex-partner’s retirement pot unless you’re legally divorcing or dissolving a civil partnership. Matthew Taylor, partner at Stowe Family Law, said: “Cohabiting couples need to be aware that on separation, there are no claims that can be made against their ex-partner’s pensions. Whereas divorcing couples, and those who have been in civil partnerships, can make claims for pension sharing orders to receive a percentage of their ex-spouse’s pension, no such right exists for cohabiting couples.”
However, you can make plans for what happens to your pensions and other assets if you’re cohabiting and one of you passes away. This may be particularly important if, for example, one of you has taken time out of work to raise a family and therefore has saved less into a pension. This is most likely to apply to women who have, on average, a pension worth around at third less than men’s by age 55. Read more in our article Women and the gender pensions gap.
If you’re considering getting professional financial advice, Unbiased is offering Rest Less members a free pension review. It’s a chance to have a qualified independent financial advisor (IFA) take a look at your pension arrangements and give an unbiased assessment of your retirement savings.
The review is free and without obligation, but if the IFA feels you’d benefit from paid financial advice, they’ll go over how that works and the charges involved.
Here, we look at the importance of considering who will inherit your pension, and how you can plan ahead as a cohabiting couple.
Pensions and tax planning
Pensions can be a particularly efficient way to pass on your wealth after death to your loved ones, particularly if you’re cohabiting. That’s because your retirement pot won’t usually be subject to inheritance tax (IHT). If you’re married and leave assets such as a pension or investment to your spouse or civil partner, these are free from IHT, but this tax advantage doesn’t apply to cohabiting couples.
Alice Haine, personal finance analyst at Bestinvest, the DIY investment and coaching service, said: “Pensions are a great financial planning tool for couples as they fall outside of someone’s estate on death, which means no inheritance tax is payable on them and if someone dies before the age of 75, they will also be passed on free of income tax – so making sure you have rights to all of this is key for someone in a cohabiting partnership.”
If you pass away before the age of 75 most pension benefits from a defined contribution pension scheme are paid free from tax to your beneficiaries. However, if you pass away after the age of 75, any pension benefits will typically be subject to tax at the beneficiary’s marginal rate.
Read more in our article What happens to my pension when I die?
Workplace defined contribution pension
The majority of workplace pension schemes are defined contribution, or money purchase pension schemes. The amount you will have in your pot depends on how much you’ve contributed over the years, and investment performance. Read more in our guide Workplace pensions explained.
You’re usually able to choose who you’d like to receive any pension benefits after death. You’ll typically nominate who you’d like to receive your pension when you join your workplace pension scheme, but if you haven’t done so, make sure to update these details. You can complete your provider’s ‘expression of wish’ form (and ensure you keep this up-to-date) to name your pension beneficiary, which can be your cohabiting partner. Your nomination isn’t legally binding, but your workplace pension scheme administrators must take your wishes into consideration when passing on your pension benefits if you die.
Melissa Markham, associate family and collaborative solicitor at Whitehead Moncton, said: “If a cohabitee has not been provided for by an expression of wishes, either because they were not elected or because the pension scheme did not follow the expression, as it is discretionary, challenging this on death or separation can be difficult.”
“When a cohabiting couple separate, an application could possibly be made for financial provision from a pension lump sum, in the right circumstances, but these applications can be costly and difficult to succeed in.”
Final salary or defined benefit pension
Final salary, or defined benefit pension schemes, which are based on your earnings and how many years you’ve worked for your employer, come with their own particular rules. These tend to be stricter when it comes to cohabiting partners.
Haine said: “People can only leave a defined benefit pension scheme on death to a husband, wife, civil partner or dependent child under the age of 23. It cannot be passed to your partner if you are not married.
“This is why it is important to check what kind of payout a surviving partner might receive when you die as this may affect how you handle the pension.”
If you’ve a defined benefit pension, ask your scheme administrator how your particular scheme works, and who may inherit your pension on your death. You may find the scheme will pay out to a cohabiting partner who’s lived with you for several years, provided you can prove that you live together. The amount your partner can receive will depend on your particular scheme and your age when you die. Some old schemes, such as some of the 1987 Police Pension Scheme, for example, will not pay out to cohabiting partners. However, the NHS Pension Scheme will pay out to your spouse, civil partner or cohabiting partner. Read more about these types of schemes in our guide How do public sector pensions work?
Bear in mind that there can also be difficulties for cohabiting partners when it comes to an employer’s death-in-service schemes if one partner dies and hasn’t named the other as the beneficiary. Speak to your scheme provider to ensure you understand what will happen to these benefits if you pass away, and make sure you’ve filled in an ‘expression of wishes’ form (which they should provide you with) which explains who you want any death-in-service benefit to go to.
Private pension
If you’re self-employed or simply looking to supplement your workplace pension scheme, you may pay into a private pension. There are several different types, such as self-invested personal pensions (SIPPs). Read more in What are the different types of pension?
If you’re married, any money left in your pension will usually pass to your surviving spouse, unless you’ve named someone else as the beneficiary. However, again, if you’re cohabiting, you’ll need to ensure you’ve named your partner on your private pension provider’s ‘expression of wish’ form to enable them to inherit part or all of your pot. This form can usually be easily found online in your pension account, or ask how you can complete this. You can find out more in our guide What is a pension expression of wishes?
Planning ahead and avoiding disputes
You may also want to seek legal advice to ensure that your financial positions are protected when it comes to all your assets, including pensions, in the event of a break up or death. As mentioned, if you would like your cohabiting partner to receive your pension when you die, you’ll need to take steps to ensure this is the case by completing the relevant forms.
Without doing this, your pension pot will pass to whoever should receive this under Intestacy Rules, such as a close family member. This makes completing ‘expression of wish’ forms an important part of your financial planning, and to avoid any potential disputes over who should inherit your pension. It’s really important to keep this up-to-date too if your circumstances or wishes change.
Haine said: “If you start a new relationship and don’t update the form with the new partner’s details, there could be a dispute over who receives the money, and the ultimate decision will be made by the trustees. Updating this information is a simple, easy exercise typically sorted online directly with your pension provider saving you and your partner from a financial nightmare in the future.”
Bear in mind that while your will doesn’t directly cover your pension, you can still make a note of your wishes for your retirement pot in your will in case a dispute occurs. You’ll need to have an up-to-date will to cover your other assets. Read more in our articles The importance of writing a will and How to write a will. Remember that if you’re not married you have no legal right to inherit at all, unless you’re named in your partner’s will as a beneficiary of some or all of their estate.
If your relationship is ending, and you need help dividing your money and property or making arrangements for your children, amicable is a trusted legal service for separation and divorce. Unlike solicitors, amicable works with couples and offers a fixed-fee service that includes VAT to help manage all aspects of separation so that you can agree on the best way forward for your family and your finances. Get in touch to explore how they can help you separate in a kinder, better way.
Annuities
If you buy an annuity at retirement to provide an income for life, it’s likely that this retirement income will stop when you die. However, you can buy an annuity that will continue to provide an income for a cohabiting partner, or spouse. These are called a joint annuity, which pays you an income until you die, at which point it transfers to your partner and will pay them an income until they die. Read more in our article Annuities Explained.
The State Pension
As a cohabiting couple, you aren’t entitled to any of your partner’s State Pension if your partner dies. When they pass away, their State Pension payments will simply stop, no matter how long they have been paid for.
By contrast, married couples may be able to inherit part of each other’s State Pension, depending on when they reach or pass State pension age. For example, if you die before reaching State Pension retirement age your spouse might be able to inherit part of your Additional State Pension provided your marriage or civil partnership began before 6 April 2016. Read more in our article What happens to my State Pension when I die?
If you’re considering getting professional financial advice, Unbiased is offering Rest Less members a free pension review. It’s a chance to have a qualified independent financial advisor (IFA) take a look at your pension arrangements and give an unbiased assessment of your retirement savings.
The review is free and without obligation, but if the IFA feels you’d benefit from paid financial advice, they’ll go over how that works and the charges involved.
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