New Which? research has found that seven in 10 (71%) divorced Which? members did not include pensions in their financial settlements, with women more likely to be negatively affected in the long-term.
Since 2000, UK courts have allowed divorcing UK couples to share pensions – but this is not the norm. A survey of almost 1,000 Which? members who have been through a divorce since 2000 showed that of the vast majority who opted not to pension share, almost one in five (18%) had not considered division of pensions during their divorce proceedings, and 22 per cent did not want to share their pensions.
There is a risk that this problem will be exacerbated by “no-fault divorce” reforms, which could make it more difficult for some people to access legal advice in good time.
Across the board, the number of people opting to pension share is falling. Data obtained by legal firm Nockolds via a freedom of information request revealed that the number of divorcing couples applying for pensions sharing orders has fallen by 35 per cent since 2017, from 36,202 to 23,622 in 2021.
Which? is concerned that some couples are potentially ignoring one of the biggest assets in their marriage. Leaving a large pension out of a divorce stands to disproportionately affect older women who are statistically more likely to have inadequate pension savings.
While a variety of factors are at play, recent research from Now Pensions states that on average women spend as many as ten years away from the workplace owing to career breaks to look after children or elderly relatives, with the burden of care often not routinely split between married partners. Lower earnings, sometimes as the result of part-time work, also mean women may be making lower contributions, or earning less than the automatic enrollment threshold.
As a result, women’s pension pots can stagnate, potentially spelling disaster for a woman who divorces and does not get a share of her spouse’s pension.
One woman who lost out because she was unaware of pension sharing orders, 48-year-old Samantha Lee, told Which?: “Divorce is a dirty word. It’s a very isolating experience and no one advised me to get legal counsel…I had no idea I needed to protect myself. But more than that, I didn’t feel entitled to anything.”
Which? also heard from a woman in her sixties whose husband filed for divorce after 34 years of marriage. While he had built up a substantial defined benefit scheme or ‘final salary pension’, she had worked part-time for most of the marriage, leaving a significant disparity in their respective retirement funds. After a recommendation to seek legal advice, she decided to pursue a pension sharing order, which was finally granted eight years on from the original divorce filing. While legal advice proved to be key in this particular case, as many as one in three of Which? members surveyed admitted that they did not seek professional advice during their divorce.
The gap between married men and women’s pension pots starts early, with married men aged 30-44 having on average more than double the private pension pot of their wife (£18,760 for married men compared to just £8,604 for married women).
The gap continues to grow with age, with couples in their sixties suffering from the starkest disparity in retirement savings. According to research carried out by the University of Manchester and the Pensions Policy Institute, the average married woman aged 64-69 has accrued merely £28,000 in private pension savings, compared with £260,000 for their male counterparts.
Under the new no-fault divorce laws, introduced in April this year, one person can apply for divorce, with the court then notifying their spouse within the 20-week waiting period before the conditional order. However, the notification can sometimes be received as late as 18 weeks into the process, leaving little time for the notified spouse to make plans or seek legal advice.
Though many people may be deterred from a pension sharing order as they believe this will financially tie them to their former spouse after the divorce is concluded, this is usually not the case, with a percentage of the pension pot transferred at the point of divorce. Less frequently, an attachment order may be applied. In these cases, the share is paid as a kind of maintenance, which ends in the event of the former spouse’s death.
Jenny Ross, Which? Money Editor, says:
“Despite the law permitting the sharing of pensions during divorce proceedings since 2000, Which? research shows that a majority of couples neglect to do so.
“Women are most likely to be negatively affected by this and the financial impact on missing out on a share of a significant pension could be catastrophic in later life.
“Wherever possible, we encourage people to seek legal and financial advice when embarking on divorce proceedings, in order to ensure they are equipped to make the best financial decisions for the future.”
NOTES TO EDITORS
– Which? surveyed 948 members of its online panel who have gone through a divorce or dissolution since 2000. The survey was conducted in May 2022.
– In England, Wales and Northern Ireland pension sharing will apply to the entirety of an individual’s pension pots, but the law is different in Scotland, where only the value of the pensions you have built up during your marriage or civil partnership is taken into account.
– Many divorcing couples choose to offset the value of the larger pension pot against an asset such as the matrimonial home, which at the time, may seem like a good deal – on paper, the property may be worth more than the pension and is an immediate financial benefit – unlike a pension, which you may have many years to wait for.
– Nonetheless, certain pensions, such as defined benefit schemes (also known as ‘final salary pensions’), can be more valuable than they appear at first glance. During a divorce proceeding, you are required to declare the Cash Equivalent Transfer Value (CETV) of your pension. However, this doesn’t include the projected future value of the pension or other benefits, such as death benefits and discretionary benefits, which could prove more valuable in the long-term. With this in mind, it’s important to seek professional advice wherever possible – something up to a third of divorcing couples neglect to do, according to Which? research.
– Which?’s 2019 ‘Top Up The Pots’ report made a number of recommendations for improving pensions equality. You can read the report in full here: https://www.which.co.uk/
Tips for future proofing your pension:
– If you can afford to, continue making pension contributions during any career break you may take. It might also be worth considering increasing your contribution amount when you return to work. Some employers will match your contributions, so even a 1% increase could make a significant difference in the long term.
– Consider sharing career breaks between each spouse, meaning less disparity between pensions pots over time
– During a career break, explore whether the working spouse could make contributions to the other partner’s pension pot, to ensure they continue to grow their pension fund during periods out of work.
– For your state pension, you need 35 years’ worth of National Insurance Contributions (NICs) to receive a full state pension, and 10 years’ of contributions to receive the minimum amount. If there are years in which you didn’t pay enough National Insurance to provide a ‘qualifying year’, you can opt to top up your record by making what’s known as a Voluntary ‘Class 3’ NIC. The cost of filling gaps from the most recent 2021-22 tax year is £15.40 a week.
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