UK: UK Cohabitees have greater financial risk, as confusion reigns over legal and benefit entitlements

15 Feb 2017

• Half (51%) of cohabitees think government benefits are biased in favour of married couples
• But confusion persists among cohabitees around their legal entitlements: nearly one in five (19%) wrongly believe they are eligible for bereavement benefit
• Over a third (36%) do not know that the Marriage Allowance exists
• A third (33%) of cohabitees have not yet named the beneficiary of their pension
• Cohabitees' finances are in poorer health than married couples, with lower incomes and less savings
• Three quarters (74%) of cohabitees do not have a will and 64% have no life insurance
• One in ten (10%) cohabitees also admit to only being with their partner as they cannot afford to separate

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, Aviva's Family Finances research shows.

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 children, 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.

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% twenty 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. As this family type continues to grow, it is vital cohabitees are helped to understand the financial implications of their relationship choices.

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.

Over a third (36%) of cohabitees who intend to marry do not know that the Marriage Allowance actually exists.

Table 1: Cohabitees who mistakenly believe they are eligible for financial benefits

Automatic pension rights?

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.

Financial vulnerabilities

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.

Table 2: The financial profile of cohabitees versus those who are married

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.

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, Individual Protection, Aviva UK commented:

'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.'

- Ends -

ONS, Families and Households in UK, Nov 16

ONS, Families and Households in UK, Nov 16

Cohabitation Rights Bill, parliament.uk

If you are a journalist and would like further information, please contact:

Instinctif Partners: Rachel Morrod: 0207 427 1431 or Rachel.Morrod@instinctif.com / Jordan Campbell: 0207 457 2056 or Jordan.Campbell@instinctif.com

Aviva Press Office: Melissa Loughran: +44 (0)1904 452791 or Melissa.loughran@aviva.com

A copy of the Winter 2016/2017 Family Finances Report is available for download here.

Podcast for broadcast journalists: An audio clip of Paul Brencher, Managing Director, Individual Protection at Aviva, discussing the findings, is available for download here.

Methodology:

Over 2,300 people aged 18-55 who live as part of one of six family groups were interviewed to produce the report's latest tracker findings for Q4 2016.

In total, 32,767 UK consumers have been interviewed for the tracker between December 2010 and December 2016.This data was combined with additional information from external sources cited within the main report listed below and used to form the basis of the Aviva Family Finances Report. All statistics refer to figures from the latest wave of research unless stated otherwise.

The family types surveyed in this research are:

• Married/civil partnership - defined as those who are married or in a civil partnership and living together, including those who don't plan children, plan children or have one or more children. For the purposes of this report, all mentions of 'married' refer to those who are married or are in a civil partnership.
• Cohabiting - defined as those who are in a committed relationship (but not married) and living together, including those who plan children, don't plan children, or have one child or more.
• Divorced/separated/widowed, raising one or more children alone
• Single, raising one or more children alone

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