Civil partnerships and opportunities

The Civil Partnership Act 2004 came into force on December 5 this year. This allows same-sex couples legal recognition of their relationship and gives them the legal status of civil partner. Up to 22,000 people are expected to be in civil partnerships within five years so this must be considered as part of financial planning.

Civil partners now have similar rights to married couples in relation to Inheritance and Capital Gains Taxes, wills, trusts, pensions, insurance, housing and immigration. For example, civil partners will be able to accrue survivor pensions in public service schemes and contracted-out pension schemes, and also be able to transfer assets to their partner without Inheritance Tax. But though pension and tax are the most important financial areas affected, there are also implications for protection products.

We’ll soon be seeing the option to select ‘civil partner’ alongside ‘married’ on all forms. Of course, application forms for protection products are no exception.

Also affected will be the guaranteed insurability options offered on many protection policies. Policies frequently include an option to increase the amount of cover after a marriage without the need for medical underwriting. These options will need to be extended to people entering into civil partnerships.

Civil partners will have rights when it comes to state benefits. If someone receives certain benefits, they may qualify for additional benefits for their civil partner. Though state benefits are set at a level intended to cover a very basic standard of living it is still important to consider them when planning your clients’ protection arrangements, for example if you are setting up an income protection policy in which the maximum cover takes state benefits into account.

There will also be changes when it comes to insurable interest. Until now, people have an unlimited insurable interest in their own life and that of their husband or wife. The Act extends this to civil partners. This means they will be able to take out any amount of life or critical illness insurance (within the financial limits of the policies) on the life of their civil partner allowing ‘life of another’ policies to be used, perhaps as an alternative to trusts.

Trusts and the law of succession will also be affected. Trust arrangements that refer to spouses will not automatically include civil partners as beneficiaries and may need to be reviewed but just as a marriage (in England) dissolves a will, so does a civil partnership.

There will be changes to child legislation regarding parental responsibility. As always, when children are involved, parents must ensure they have a financially secure future. This is a great opportunity for advisers.