Prioritising pensions on divorce
One of the specialist areas of advice we offer is helping people getting divorced understand their pension options.
With pensions often the second most valuable marital assets, after the value of the family home, it was surprising to read that seven in 10 couples don’t consider pensions during divorce proceedings.
As a result, the research carried out by pension provider Scottish Widows suggests women could be short-changed to the tune of £5bn a year.
The research found that more than half of married couples would fight for their fair share of property and 36% would want to split their cash savings in the event of a divorce.
However, only 9% claim they want a fair share of pensions.
This is despite the average married couple’s retirement pot being valued at £132,000; a significant sum of money which can make a real difference to living standards in later life.
To put this lack of concern about pensions into some context, Scottish Widows reported that more married people would be concerned about losing a pet during a divorce than sharing a pension.
It’s often reported that women tend to be less well prepared for retirement than men.
Only 52% of women were found in this survey to have made adequate provision for the future, compared to 59% of men.
For divorced women, the numbers who will be financially secure in retirement are even lower, with only 49% making adequate provision.
And 24% of divorced women say they will be unable to save anything at all into a pension.
Failure to prioritise pensions on divorce is having serious financial consequences for women in retirement.
Scottish Widows found that two-fifths of divorced women (40%) say their retirement prospects became worse as a result of the split, compared with just 19% of men.
Even if pensions are discussed during a divorce settlement, women are still missing out – 16% lost access to any pension pot when they split with their partner and 10% were left relying completely on the State Pension.
The options for dealing with pensions on divorce can be complex, especially when considered alongside the broader financial settlement.
Scottish Widows found that almost half of women have no idea what happens to pensions when a couple gets divorced.
This highlights the importance of seeking professional advice; seeing a specialist family solicitor is a must, but so is speaking to a suitably experienced and qualified independent financial adviser, at an early enough point in the divorce process that the advice can make a meaningful impact.
The research from Scottish Widows reminds us that pensions can be dealt with in a number of ways on divorce.
The starting point should always be to find out what pensions there are, what are they worth and how they fit with any other assets such as property and savings and each spouse’s needs for a home and income.
If an adjustment needs to be made to get a fair overall outcome on a divorce this can be done by one person keeping their pension, but the other getting more of the other assets (called “offsetting”); or the court can make a pension sharing order giving a percentage of one person’s pension to the other (which could be 50:50 but often won’t be); or a combination of the two may be needed.
Despite the availability of this option, pension sharing orders are made in just 11% of divorces.
Catherine Stewart, Retirement Expert at Scottish Widows,said:
“Generally speaking women’s retirement prospects are worse than men’s. The persistent gender pay gap, maternity leave and career breaks can all hold back women’s earning potential and this often impacts pension savings. Relationship breakdowns can leave people really vulnerable but, quite simply, they’re also throwing significant sums of money down the drain.
“It is important that everyone – whether single, married or divorced – take steps to understand their finances and prepare for their independent future should a relationship break down. We would urge men and women to better understand the legalities around what happens to pension pots during divorce proceedings, as often they are the second largest, if not the largest asset a couple owns.”
Nigel Shepherd, Head of Family Law at national firm Mills & Reeve, said:
“Pension sharing was introduced almost two decades ago, but it is clear that all too often in a divorce pensions are still not being taken into account properly or at all. The problem has been made very much worse by the fact that so few people are now entitled to legal aid and are having to negotiate the minefield of financial issues on divorce without even basic legal advice. This is storing up real problems down the line, in particular for women.
“While some pensions are relatively straightforward, others (for example public sector schemes) are complex. There is no substitute for expert legal and financial advice and the costs involved should be considered an investment.”
We would encourage anyone who is getting divorced to come and have a chat with us on a no obligation basis, so we can help you understand your choices and options as they relate to pensions.
We have a lot of experience working with clients who are getting divorced and often work closely with solicitors to ensure financial settlements are negotiated to cover short, medium and long-term financial priorities.
It’s all too easy to neglect retirement when thinking about the immediate financial impact of divorce.
By getting professional independent financial advice early in the process, you can prioritise pensions and secure your long-term future.