Cohabitation and pensions

These unmarried cohabiting couples quite often share their lives, finances, and assets, including pension savings.

However, what many cohabiting couples don’t know is that in the event of a breakdown of their relationship, unlike their married counterparts, they do not have an automatic right to benefit from their partner’s pension. The only exception is if they are named formally as a ‘nominated beneficiary’ in the event of death (usually subject to trustee discretion).

The statistics

1. 20% of all couples in the UK are living together and choosing not to marry or to enter a civil partnership.
2. 46% of those in England and Wales wrongly believe that living with a partner affords them rights by way of a ‘common law marriage’ when, in fact, there is no such thing.
3. The above figure rises to 55% where the household has a child — this means more than half of parents in this country are operating under a misapprehension as to their rights on separation.

The law

There is no comprehensive legislation dealing specifically with the separation of cohabitants. This stands in stark contrast to the laws surrounding divorce or dissolution. Instead, cohabitants, on separation, are forced to find their way through a complicated array of property, trust and Children Act laws.

Instead of the system that applies on divorce or dissolution, which has a focus on a fair outcome, the property and trust laws that are invoked in a separation dispute are often restrictive and can result in one party leaving the relationship severely prejudiced financially. Whilst it may be possible to establish a claim in relation to a property where financial contributions have been made, disputes are notoriously expensive to resolve and outcomes uncertain.

Further, when it comes to pensions, a cohabitant will have no rights at all. Pensions are invariably shared on divorce or dissolution to ensure fairness on retirement. In contrast, a cohabitant would have no claim to a share of the other’s pension. It would be preserved in full by the legal owner.

The challenge

For unmarried cohabiting couples, separating can present complex financial challenges. Whilst they may have shared financial responsibilities and even contributed directly or indirectly to their partner’s pension plans during their time together, there is no entitlement to a share of their partner's pension upon separation. This lack of legal recognition can be particularly concerning, given that pensions often represent a significant portion of an individual's long-term financial security.

Possible solutions

Although a pension itself cannot be shared between cohabitants, other steps can be taken to reduce the risk of dispute, and in some cases financial hardship, when a relationship between unmarried couples ends.

Cohabiting couples can enter into a cohabitation agreement that regulates their financial arrangements whilst living together and what will happen, and who will get what, if they separate. The agreement can also indicate what should happen if either party dies whilst living together. Making a will at the same time is also advisable.

Whilst the legal system doesn't offer the same protections for unmarried partners as it does for married couples, it is crucial for cohabiting couples to have open discussions about their finances, to take legal advice, and explore the options available to protect their long-term financial well-being in the event of a breakup.