Advice to overcome pensions inequality

One way is to set up a personal pension for the couple.

Personal pensions can be arranged to give cover to whoever the pension scheme member wants, provided the pension scheme member can pay what might be large contributions to the pension fund.

Thanks to the open market, annuity providers can set up joint life annuities with people other than spouses, civil partners or financial dependents.

Therefore, an adviser could shop around on the open annuity market for more flexible annuity products.

However Robert Graves, head of pensions technical services for Rowanmoor, says: “Although legislation allows annuities to provide for a joint life survivor’s pension to any individual, not just spouses or civil partners, more shopping around may be required to find an annuity provider offering acceptable terms.”

There are also self-invested personal pensions that can be used to help ensure a healthy income in retirement for cohabiting couples or married same-sex couples, as there can be the option of beneficiary flexi-access drawdown, which would allow the named beneficiary to draw down as much or as little of the inherited fund as they like as income.

Mr Graves adds: “Death benefit provisions under Sipps are flexible in terms of whether the member and their partner are married, civil partners, opposite sex, same-sex, cohabiting, dependant or non-dependant.

“But they will only offer full flexibility if the member has adequately completed a death benefit nomination form to reflect their wishes.”

Paperwork

This brings us onto the next point: form-filling.

Where a scheme is suitable for couples living together, they will need to complete a death benefit nomination form, sometimes called an ‘expression of wishes’ form, which states who you want benefits to be paid to when you die.

For occupational schemes, relying as it does on the discretion of the trustees, a lot of it comes down to basic administration: ensuring that as much paperwork as possible is done, logged, and kept up-to-date.

Trustees of personal pensions that allow flexi-access drawdown will decide who gets the pension pot and how - whether a lump sum or an income - but the decision will be helped greatly by accurate, up-to-date expression of wish and death benefit nomination forms. An adviser will be crucial to making sure that all the paperwork is in order.

Education and awareness

One of the first steps is to find out well in advance of the clients’ estimated retirement date what sort of benefits would be available to them and to their same-sex or unmarried partners, so that any potential shortfall in income could be met in other ways.

Alistair McQueen, savings and retirement director for Aviva, says: “Each pension scheme can choose how it wants to act within the law, so if an individual has specific concerns, perhaps surrounding their scheme’s treatment of the 2005 date, the best thing to do is for an adviser to check with the client’s scheme administrator(s) by asking for a full explanation of the survivors’ entitlements in the case of death.

“For the purposes of the state pension, the client could first contact The Pension Service for clarification.”

Inheritance and wills

Inheritance tax can be an issue especially for unmarried couples, as Clare Moffat, technical manager for Prudential, outlines: “The inheritance tax nil-rate band is only transferable to a spouse or civil partner.

“If someone dies without a will, then the law of intestacy only applies to spouses or civil partners. You could have the scenario of a couple living together for a long time and jointly owning property but there being a separated spouse.

“If there is no will, then on death, 50 per cent of the house could end up belonging to the separated spouse.”

Wills are vital to help protect unmarried hetero or homosexual couples; if you do not offer a will-writing or probate service, make sure clients are made aware of, or introduced to, a legal practice that can help ensure that the wishes of the deceased are protected in law.

Therefore it is useful as an adviser to create professional partnerships with good local law firms to help clients through this emotional and legal minefield.

The government says equalisation of pension provisions would entail unforseen costs to schemes, but there is no justification for discrimination PSC statement

Advice and lobbying

Ms Moffat adds: “Seeking financial advice is key. From a purely financial planning point of view, being married or in a civil partnership will always be preferable to cohabiting.”

Robin Ellison, consultant with Pinsent Masons, suggests: “Advisers should impress on their clients that marriage or its equivalent is important to consider for both enjoying survivors’ benefits and IHT reliefs.”

His comment highlights a political issue: while clients have freedom to choose their relationship style, not all clients will have full legal and financial rights.

And even with the 2013 Marriage (Same-Sex) Act and the 2004 Civil Partnerships Act, no laws have been made to remove barriers to full financial equality, predominantly on grounds of cost.

In its response to the May 2014 government consultation on survivor benefits, the Public and Commercial Services Union states: “The government says equalisation of pension provisions would entail unforseen costs to pension schemes, but there is no justification or room for discrimination.”

The UK has made great strides during this century towards equality but while inconsistencies in the application of the law remain, advisers with unmarried clients and clients in civil partnerships or same-sex marriage will have to deal with some sticky pensions problems for the foreseeable future.