Getting divorced? How to protect your pension

Known as ‘divorce month’, lawyers across the country report more people filing for divorce in January than any other month of the year. Indeed, according to Amicable – a company that supports people going through separation – as many as 40,500[i] people will search ‘divorce’ online in January, which is 25% higher than at any other time of the year.
 
The festive period has a habit of shining a spotlight on unhappy marriages, and many people start to seek new beginnings in the new year. But amid the emotion of embarking on separate lives, and the logistics of complicated family and financial arrangements, people in the throes of divorce can often overlook longer term financial arrangements in favour of ‘getting life sorted’, such as buying a new home and ensuring children are financially supported.
 

Don’t leave yourself financially vulnerable

A specific area of concern is making appropriate provision for retirement income. It’s easy to overlook this when negotiating terms of a divorce as it can feel like a very long way off. Here are three of the key issues facing women when it comes to retirement, although these are equally relevant for any stay-at-home parent/ carer:
 

  1. Lack of confidence in future pension provision

Women are particularly vulnerable when it comes to adequate pension provision. Our ‘What’s your Number?’ research study found that 26% of pre-retiree women (age 55 to 64) expect to rely on their partner’s savings and investments in retirement. That figure goes up to 35% for women of high net worth. At the same time, only 12% of women are ‘very confident’ that they can build up a pension pot that allows them to retire when they want. In general, women are far less confident about their retirement savings than men at every life stage. But what is staggering is that this confidence gap is most pronounced after age 65 when 61% of men are confident versus only 36% of women. This shows an enormous gap in the financial fortunes of older women and older men.
 

  1. Lack of pension wealth

According to the Office for National Statistics Wealth and Assets Survey, the average divorced woman over the age of 50 will have a pension worth about £131,000, three times less than the average married couple of the same age, at £454,000[ii]. And a report by the Pensions Policy Institute found that there are 1.2 million women in their 50s with no private pension wealth and hence will rely on the State Pension system and their partner to provide a retirement income. This represents approximately 5% of all women[iii]. This is particularly concerning because, by the time they are in retirement, any maintenance payments may have ceased, leaving them with no income at all.
 

  1. Lack of independent help and guidance

The issues above could perhaps be avoided if stay-at-home parents/ carers felt able to seek financial advice, placing an importance on their own pension provision. Our report found that at every life stage, men are more likely to seek financial advice than women, with nearly 6 in 10 female retirees never having received advice. Instead, women are more likely to base financial decisions based on the recommendation of a family member. But what happens if you are divorcing the family member in question?
 

Your pension options

You need to think carefully about how you will fund your retirement. There are several options when it comes to splitting pensions at divorce or when a civil partnership dissolves, and it can be complex. For that reason, we would recommend you find a lawyer that specialises in pensions. Not all lawyers are experts in this area, and they can overlook future provision during retirement in favour of securing a good ‘upfront’ deal.
 
For example, there is an option of ‘pensions offsetting’, where you receive (say) a bigger share of the family home in lieu of a share of your ex-partner’s pension. This might feel like a good option in the short term, but when the family maintenance payments stop, the children have flown the nest, and you find yourself with no income, you may regret this decision.
 
Alternatively, you can agree to ‘pension sharing’, where the pension is transferred into your name (or your name is added to your ex-partner’s pension scheme), and you get a percentage share of their pension(s). Or there is a ‘pension attachment order’ where a share of your ex-partner’s pension is ear-marked for you, and you will start receiving it when it starts being paid to them. Any payment you receive is subject to tax at your ex-partner’s rate of income tax. You will need a court order for either of these options, hence the reason it’s so important to find a lawyer who is knowledgeable in this field. If you are both already retired, you can still split a pension, but you won’t be able to receive your share in the form of a lump-sum. It will need to be paid to you as an income.
 

Plan ahead and take advice

If you are going through a divorce, it’s easy to become fixated on the family home as your biggest asset when it comes to splitting finances. But your ex-partner’s pension may also be a significant asset, and you need to protect your financial well-being for the long term. As well as ensuring you have the right lawyer, you should also seek advice from a qualified financial adviser as soon as possible.

 
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17 January 2020
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