Pension Clinic explores how civil partnerships for opposite-sex couples could remove grey areas around occupational schemes.
One of the more complex areas of pensions relates to the rules around people who are married or living together as a couple, and what happens in the unfortunate event that one of them dies.
The state pension system has just one set of rules (where legal marriage or civil partnership is the only thing that counts in terms of paying benefits to widows and widowers), whereas occupational pension schemes have a wide variety of rules. Some provide extensive benefits for a surviving member of a cohabiting couple, while others provide very little. However, a recent announcement by the government may help to reduce some of these anomalies.
Civil partnership rights
At the recent Conservative party conference it was announced that opposite-sex couples will be able to register a civil partnership in the same way that same-sex couples already can. With more than six million people living together in couples outside marriage, the option of registering a civil partnership could make a significant difference to their rights under the tax, benefits and pension system. And this is not just an issue for younger people, with more than three quarters of a million people aged 55 or over living together as an unmarried couple, often having been married and divorced or widowed earlier in life.
The significance of this change is that benefits for ‘survivors’ (as widows and widowers are generally referred to in the pensions world) tend to be automatic where the couple were married. More recently, when (same-sex) civil partnerships were introduced, the rights of married couples were generally expanded to include civil partners. For those who were married or in a civil partnership when their other half died, there can be lump sum death benefits and/or an ongoing regular pension for a surviving spouse.
However, where people live together as a couple outside marriage, things are often less clear-cut. For example, some pension schemes will recognise cohabitation but may require some evidence that the relationship is a serious and lasting one, rather than just a fleeting thing. Others may stick to the legal minimum for occupational schemes, which relates only to married couples (and civil partners). If opposite sex couples are able in future to register a civil partnership, this could remove a lot of grey areas about who is entitled to what when someone dies.
There could be a big issue for public sector pension schemes when it comes to survivors’ benefits. At present, widows generally receive the most generous benefits under occupational pension schemes. This reflects the historical assumption that women are financially dependent on men and the loss of a husband could leave a widow in destitution. Over time, survivors’ benefits have been extended to widowers and the to the surviving civil partner in a civil partnership. But, for various historical reasons, widowers’ benefits and those for surviving civil partners have tended to be less generous than those for widows.
This could all change once heterosexual civil partnership becomes possible. If a woman married to a man is entitled to comprehensive widow’s benefits but a woman in a civil partnership with a man gets less, this would further undermine the principle that civil partnership and marriage are equal in the eyes of the law. If all members of all couples received survivors’ benefits at the level applicable to widows, the government estimates that public sector schemes in particular could face a bill approaching £3 billion, with £1 billion of that payable immediately to those who had already been bereaved.
No overnight change
None of this is likely to happen overnight. Although the policy intention has been announced, the government has also said that there are outstanding issues – including pension issues – to be resolved before the legislation could be implemented. This means it is likely to be a few years before the new regime is in place. But once it is, there will be a strong case for couples who live together to consider registering a civil partnership.
Not only would this potentially give them access to tax breaks for couples and to national insurance benefits for bereaved couples, but it could also help ensure that when one partner died, the other would have a much more straightforward experience in getting the help to which they were entitled from an occupational pension scheme.
Steve Webb is director of policy at Royal London.