Occupational pensions could be boosted by billions of pounds if opposite-sex couples could register as civil partners under a new law currently passing through parliament, Royal London has found.
According to new research from Royal London, around 3.3 million cohabiting couples could receive a multi-billion pound bonus if MPs pass the law that equalises the rights of civil partnerships to opposite sex couples.
While the provision for widows/widowers in occupational pension schemes has previously been for married couples and more recently, civil partners, if opposite sex couples are permitted to register as civil partners, billions of pounds could be gained, Royal London has noted.
If this law is passed, there would also be strong incentives for older cohabiting couples to register for a civil partnership in order to benefit from improved state pensions following the death of a spouse. Currently, an older married woman could receive an increased state pension by around £2,500 per year after the death of her husband. However, this does not apply to cohabiting partners under current law.
In addition to these, the passing of the civil partnerships law could entitle those involved to benefit from income tax, or “marriage allowance”. In 2017/18 this allowance is worth around £230 per year, therefore, if the law is passed, the total that could be claimed by eligible cohabiting couples would be around £750m.
The law would also entitle all civil partners to National Insurance bereavement benefits and the passing of wealth to a surviving spouse free of inheritance tax and they could transfer an unused part of their inheritance tax threshold to their partner.
Royal London personal finance specialist Helen Morrissey said: “With each passing year more and more people are choosing to live together as a couple without marrying, yet we still have a tax and benefit system which barely recognises their existence. It cannot be right that they pay the same tax and National Insurance contributions into the system as their married counterparts but are entitled to get less out of it. The ability to register a civil partnership would give the authorities no excuse not to recognise this large and growing group.”
Royal London director of policy Steve Webb added: “Millions of couples who live together could potentially benefit to the tune of several billion pounds if they were able to register a civil partnership. The biggest areas where they could gain include new rights under company pension schemes, access to income tax breaks for couples and entitlement to bereavement benefits. But some could also see large gains from inheritance tax advantages currently restricted to married couples and same sex civil partners. This reform is long overdue and would stop these couples being treated by the state as second class citizens.”
All of the estimates are based on current levels of cohabitation, but these potential gains could rise in the coming year. The number of cohabiting couples has roughly doubled in the last twenty years from around 1.7 million in 1997 to around 3.3 million in 2017, and the number continues to grow steadily, Royal London confirmed.