Royal London look at how a change in relationship status later in life can impact financial planning for your clients.
Recent marriage stats show huge changes in how we live our lives. Marriage rates at younger ages continue to fall while marriage rates for men over the age of 60 and women over the age of 50 are increasing. More people are also choosing to cohabit either as a precursor to marriage, or instead of it. These changes impact financial planning, so advisers must ensure their clients’ financial plans reflect their current needs and circumstances. If not, families could find themselves under severe financial pressure if one partner dies.
As an example, someone who has recently re-married will need to make sure the expression of wish form for their pension is updated with their new spouse’s details. Otherwise there’s a risk that the person previously named (i.e. the previous spouse) might receive the benefits in error.
This depends on whether the scheme is set up under discretion or direction. If it’s set up on a discretionary basis, scheme trustees have the power to investigate whether the person named on the form is the right person to receive the benefit. However, if the form is set up on a direction basis, the trustees are obliged to pay the benefits to the person named on the form, regardless of whether the deceased had re-married or cohabited with someone else.
In addition, newly married couples should update their wills to reflect their changing circumstances and amend beneficiaries if needed.
Choosing to cohabit
Keeping financial plans up to date is also important for couples who choose to cohabit, rather than marry. Contrary to popular opinion there’s no such thing as common law marriage and cohabitees can live together for many years and raise children together, yet find themselves with few rights if one partner dies.
Occupational pension schemes may not have the same death benefit arrangements for cohabiting couples that they do for married people. This puts surviving partners at risk of real financial hardship. In addition, they have no automatic right to inherit property from each other so it’s important that wills are kept up to date to make sure the right person inherits.
This is particularly the case when it comes to property. If the property’s bought on a joint tenancy basis, both partners will own the house and the surviving partner will inherit their deceased partner’s share. However, if the property’s bought under a tenants-in-common arrangement then unless the deceased partner has named their partner in their will, there’s no certainty they’ll inherit that portion of the property. This means they could find themselves owning the property with their partner’s family or children from a previous relationship, which could prove problematic.
Cohabiting couples also don’t benefit from the same inheritance tax treatment as married couples, so could find themselves facing unexpected tax bills that could run into many thousands of pounds. They’re also unable to benefit from arrangements where married couples can transfer any unused portion of their inheritance tax nil rate band to their spouse.
All of these issues can have serious and long lasting effects on people’s long term finances and it‘s vital that advisers make their clients aware of the importance of keeping their plans up to date.
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