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Wedding present

As under-pensioned Britons come to realise just how expensive buying an annuity income actually is, we are going to see a trend towards even middle-class people making the most of what the state has to offer. For many cohabitees at or approaching retirement, this could lead to a walk down the aisle or a short trip to the registry office at least.

Talk about the financial benefits of marriage usually focuses on inheritance tax and the family home. The capital gains tax exemption on gifts between spouses and entitlement to workplace pensions also figures, but the benefits of inheriting a state pension are rarely mentioned.

Yet if you are in the situation of being effectively married to somebody in all but the legal sense, or are yet to take the plunge and enter a civil partnership, you or your partner could be missing out on a considerable sum of money by cutting yourself out of basic and secondary state pension entitlement.

For any cohabitees facing a significant retirement saving shortfall, getting married or entering into a civil partnership can make a difference to the amount they will need to save. Yes, they can rely on pooling their incomes while they are both alive, but when one of them dies their state pension will die with them.

The comfort of knowing that extra income will be there for the survivor’s later years will mean more savings can be spent earlier on in retirement.

A widow is entitled to claim the basic state pension her husband was entitled to at the time of death, based on his NI record. If she is entitled to no basic state pension of her own and has other retirement wealth that precludes her from getting pension credit, that would give her an extra £95.25 a week or £4,953 a year. Widowers and civil partners only benefit from their other half’s NI record if the deceased is past state retirement age at the time of death.

Add to that 50 per cent of your partner’s secondary pension, made up of state second pension and Serps, and getting hitched could mean an extra £7,000 a year or more. A high- earner at state pension age in 2010 would get a secondary pension of £7,956 a year, at least half of which could be inherited by a spouse or civil partner.

Obviously this is in the most extreme scenario but for the 70 per cent of women and 15 per cent of men who currently do not qualify for full basic state pension, even half this figure will make a big difference to their income after their partner has passed away.

To be fair to the pension service, information about inheriting state pension from a spouse is there on its website if you look hard enough. But I spent a considerable amount of time on the FSA’s Moneymade-clear website and was unable to find any reference to the consequences of cohabitation on a state pension. Suggesting that people get married is not the business of the Government, but making clear the financial consequences of not doing so certainly should be.

I am married myself but can understand the resentment felt by cohabitees who do not wish to have their relationship formalised by the state or by some religious groups at their treatment by the UK tax authorities. But it is not all plain sailing for married folk. Annuity providers now underwrite on the grounds of relationship status, giving lower rates to married people because they live longer than single people.

At this rate we will be recommending retirees divorce before buying their annuity and get back together before they hit state pension age.

John Greenwood is editor of Corporate AdviserMoney Marketing


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