Aviva’s Family Finances research indicates that nearly two million UK cohabitees (51%) say government policies are weighted in favour of married couples, but many are still confused about the financial risks they are running.
Measures such as the Marriage Allowance and Inheritance and Capital Gains tax breaks are perceived by 1.7 million cohabitees to leave them on an unequal footing – with only 12% disagreeing with the view that policy favours those who marry.
But in a sign of how unprepared cohabiting couples are if the worst were to happen, nearly one in five (19% or 627,000) think they are entitled to bereavement benefit or allowances if their partner dies, despite the fact upcoming legislation will reaffirm that this does not apply to cohabitees. With over a third (38%) of cohabiting couples also having dependent childre1, and 74% (or 2.4 million couples) not having a Will, such confusion could add to the financial stress in the event of a parent’s death, Aviva says.
The research highlights how cohabitees are already less likely to feel financially secure (68%) than married couples (76%) and are often in poorer financial health, as well as having significantly less financial protection in place.
The findings are significant as the number of cohabitees has soared to 3.3 million, more than doubling since 1996 and accounting for 17% of all families compared to 9% 20 years ago. In contrast, while married couples still represent the largest family group (12.6 million), their share has dropped from 76% in 1996 to 67% today.
Though the Cohabitation Rights Bill is currently progressing in Parliament, which will give cohabitees certain protections, the bill is not expected to be finalised any time soon, Aviva warns.
When it comes to tax rights and obligations, nearly one in five (18% or 594,000 couples) think they are eligible for the same Capital Gains tax breaks as married couples, and 15% of cohabitees (495,000 couples) wrongly believe they can pass on their assets to a surviving spouse without incurring any Inheritance tax.
36% of cohabitees who intend to marry do not know that the Marriage Allowance actually exists.
More than one in five (21%) cohabitees believe they would inherit their partner’s final salary pension if they passed away. However, not all schemes will pay benefits to unmarried partners in the event of death and it is important for long-term cohabitees to review their pension scheme rules. For schemes where unmarried partners are permitted to be beneficiaries, they need to be named as such on the nomination form: however, a third (33%) of cohabitees have not yet named the beneficiaries of their pension if they die and 6% don’t know whether they have.
Aviva says cohabitees’ misunderstandings and sense of being disadvantaged are further compounded by the fact they tend to be in poorer overall financial health than married couples to begin with, and are less likely to have financial protection in place – putting them on a less secure financial footing.
Aviva’s data illustrates that cohabitees’ monthly incomes are 14% lower compared to married people (£1,944 vs. £2,265). This is partly due to age as 84% of 18-24s are cohabitees, compared to over half (54%) of 25-35s. That said, over a third (37%) of 36-45s and almost two fifths (39%) of 46-55s are cohabitees, highlighting that since cohabitating is a lifelong choice for some, financial weakness is not reserved to one generation.
Homeownership levels are also significantly lower among cohabitees: 58% own their home outright or with a mortgage, compared to three quarters (74%) of married people – cohabitees are therefore less likely to have experienced a key trigger for taking out financial protection.
Three quarters of cohabitees (74%) do not have a will versus 61% of married couples, while almost two thirds (64%) of cohabitees do not have life insurance compared with less than half (45%) of those who are married.
Only a minority of cohabitees (4%) have a precautionary arrangement, such as a cohabitation agreement, in place to protect their finances should a relationship break down. Typically the modest cost of such an agreement is around £300 – the same as organising a will.
Aviva says perceptions of affordability are a significant barrier for cohabitees when it comes to financial protection, and they are more likely than married people to have not even thought about taking out any financial cover for their loved ones or families.
Despite sharing a home, almost a third (31%) keep their money completely separate from their partner, nearly twice the proportion of married people that do the same (17%). One in ten (10%) cohabitees also admit to only being with their partner because they cannot afford to separate: equivalent to 330,000 couples across the UK.
Paul Brencher, managing director of individual protection, Aviva UK, said: “Many couples in the UK are choosing to marry later or not at all. But cohabitees do not enjoy the same financial benefits as those who are married or in a civil partnership.
“What is particularly concerning is the extent to which some cohabitees falsely believe they are entitled to the same benefits as those who are married. Such confusion has the potential to cause significant financial stress should their family experience an unexpected change in circumstance.
“Though it is welcome that more rights are on the horizon through the Cohabitation Rights Bill, cohabiting couples should take the time now to better understand their financial situation in order to plan effectively for the future. We must strive to create a mind-set among all UK family types that proactively planning for the long-term is important not just for those who are married but for all those who want to enjoy a comfortable future without the fear of financial uncertainty.”