Ellis Bates Financial Advisers
Financial Adviser, Carol Lammy-Steele explains how she helped to enhance a client’s life by providing help and support to someone going through a divorce.
Revolution in family law finally removes the need for blame as a basis for divorce
No one enters into marriage expecting it to end in divorce. However, for many couples, divorce is the sad reality. If you are facing divorce, it is important to know that you are not alone. Each year, thousands of people go through the divorce process.
While divorce can be a difficult and emotionally charged time, there are things you can do to make the process go more smoothly when important decisions need to be made. Keeping a level head to negotiate a fair financial settlement is vital.
From 6 April 2022 no-fault divorce came into effect in England and Wales. This is a long-awaited revolution to family law, finally removing the need for blame as a basis for divorce. Now the only ground for divorce is that the marriage has ‘irretrievably broken down’.
This means the law no longer requires blame to be apportioned, neither is there any requirement to !it your particular circumstances into one of the five facts that you previously had to prove, i.e. there is no need to cite behaviour or adultery nor wait for the minimum two-year separation period.
In addition, further crucial changes are that the respondent to the divorce is now unable to contest the divorce (the limited grounds to challenge a divorce relate to jurisdictional grounds or validity of marriage).
If you and the other party both agree the marriage has broken down irretrievably, then a joint application for divorce can now be made.
If you find yourself in this situation, here are 5 points to consider
Seek legal and separate financial advice immediately. Your professional Financial Adviser can help you draw up a list of joint and personal assets and valuations, so any legal advice you seek is based on accurate information. This can make an appointment with your solicitor more time and cost effective.
You’ll need to draw up a list of assets e.g. first or second homes, pension pots, investments, value of any businesses etc., checking when they were purchased and finding out if they should fall into the category of marital assets. In addition, list all your outgoings both joint and individual.
Cancel any financial commitments that might be in a joint name immediately. The more unscrupulous partner could take advantage otherwise and saddle you with debt you are liable for. So cancel credit cards, joint accounts, personal loans and even overdrafts if possible and set up afresh in your own name.
Although it may be the last thing on your mind, choosing the right time of year to divorce could significantly impact on the financial outcome for each individual. When a marriage or registered civil partnership breaks down, it is likely that tax will not be at the top of the agenda.
Your tax position refers to the amount of Income Tax and Capital Gains Tax you’ll need to pay. During the divorce process, there is a window of time where a spousal exemption applies and then drops off.
When it comes to pensions, finding a way to achieve a clean break so you are not tethered to your partner forever is key. What can be divided depends on where in the UK you are divorcing. In England, Wales and Northern Ireland the total value of the pensions you have each built up is taken into account, excluding the basic State Pension.
In Scotland, only the value of the pensions you have both built up during your marriage or registered civil partnership is considered. Normally, anything built up before you married or after your ‘date of separation’ does not count. There are two main ways of dealing with pensions at divorce that apply across the UK.
1. Pension sharing is often the favoured way of dividing a retirement fund because it achieves a ‘clean break’. This involves couples splitting one or more pensions. The aim is to ensure that the future incomes of both spouses are equalised. Your professional Financial Adviser will be able to help you implement any pension sharing order after the splitting process is complete.
2. The second option, pension offsetting, sees pension rights balanced against other assets, such as the home. Typically, if one spouse has a pension fund worth £500,000 and the couple jointly own a property worth £500,000, one may keep the property and the other keep the pension – though things are rarely that simple, so professional advice is key.
Whatever happens, your life is going to be very different once the divorce is complete so it’s important to budget for the future life you want to live. Obtaining a copy of your credit report is a good start, so you know what your standing is, especially as many people will need to think about a new mortgage after divorce. A credit report will also highlight any joint lending you might be liable for.
Obtaining professional financial advice can be invaluable in guiding you through the myriad financial decisions from valuing and splitting pensions, financial disclosure and income planning, to valuing investments, managing tax and implementing court decisions to get your finances back on a sound footing. To discuss your options, please contact us.
The following table shows the large difference in women and men being confident in pensions, investments and savings:
| Confidence in: | Women | Men |
| Ability to make decisions about their pension | 28% | 48% |
| Managing their investments | 22% | 41% |
| Managing their savings | 56% | 67% |
Source: Opinium survey of 2,001 UK adults was conducted between 4-8 February 2022.
Women left with half the pension pot, no matter the job.
We’ve all heard about the gender pay gap, but very few discuss the gender pensions gap, despite the fact so many women experience it. Women’s pensions at retirement are half the size of men’s, regardless of the sector they work in, new research has highlighted[1].
The gender pension gap is the percentage difference in income between men’s and women’s pensions and it begins at the very start of a woman’s career.
The research found that every single industry in the UK has a gender pensions gap, even those dominated by female workers. Considering women are likely to live four years[2] longer than men, this issue deepens as they need to have saved around 5% to 7% more at retirement age.
Worryingly, more than a third (38%) of women who have taken a career break were not aware of the long-term financial impact it would have on their pension.
According to the research, the gender pensions gap exists regardless of average pay across different sectors, and ranges from a gap of 59% in
the healthcare industry, to 13% in courier services.
The healthcare (59%), construction (51%), real estate/property development (48%), pharmaceutical (46%), aerospace, defence and government services (46%), and senior care (45%) sectors were found to have the largest gender pensions gaps. Of these six sectors, three are key industries for female employment – healthcare, pharmaceuticals and senior care[3].
There are many reasons for the gender pensions gap, ranging from women holding fewer senior positions and being paid less, resulting in lower pensions contributions, to the fact they are more likely to take career breaks due to caring responsibilities.
Of those that have taken a career break, 38% did not know the financial impact it had on their pension contributions[4].
Another potential driver is a significant gender confidence gap when it comes to managing pension pots. More than a quarter (28%) of women said they had confidence in their ability to make decisions about their pension, compared to almost half (48%) of men[5].
This lack of confidence extends further to other financial decisions, with women less likely than men to feel confident managing their investments (22% of women versus 41% of men), and their savings (56% of women versus 67% of men).
Women often have disrupted work patterns, career gaps and work part-time – this can impact their ability to save consistently for retirement without savings gaps. If you are concerned about your retirement plans and would like to review your pension options, please contact us . We look forward to hearing from you.
A pension is a long-term investment not normally accessible until age 55 (57 from April 2028 unless plan has a protected pension age). The value of your investments (and any income from them) can go down as well as up which would have an impact on the level of pension benefits available. Your pension income could also be affected by the interest rates at the time you take your benefits.
Source data: [1] The analysis is based on LGIM’s proprietary data on c.4.5 million defined contribution members as at 1 April 2022 but does not take into account any other pension provision the customers may have elsewhere.
[2] ONS: Life expectancy at birth in the UK: 82.9 years for women vs 79 years for men; Office for National Statistics, 2018 – 2020. Average four years.
[3] According to the ratio of female members across the Legal & General book of business.
[4] Legal & General Insight Lab survey of 2,135 workplace members was conducted between 4-26 July 2022.
[5] Opinium survey of 2,001 UK adults was conducted between 4-8 February 2022.
Millions of married couples have no idea about their spouse’s pensions and retirement plans, according to new research
78% of non-retired married people do not know what their spouse’s pensions are worth.
47% of non-retired married people have not spoken to their spouse about their retirement plans
85% of non-retired married people are not aware of the tax-efficiencies of planning retirement together
When it comes to marriage and money, it’s good to talk!Millions of married couples have no idea about their spouse’s pensions and retirement plans, according to new research[1]. More than threequarters (78%) of non-retired married[2] people do not know what their spouse’s pensions are worth.
Nearly half (47%) of non-retired married people have not spoken to their spouse about their retirement plans and 85% of non-retired married people are not aware of the tax-efficiencies of planning retirement together.
Wealthy people aren’t doing much better. Mass affluent people (those with assets of between £100,000 and £500,000 excluding property) are more likely than average to be aware of the value of their spouse’s pension, but the majority (60%) aren’t going to plan their retirement finances with their spouse and 78% aren’t aware of the benefits of planning retirement together.
The research indicates that millions of married people are not talking to their partners about their pensions and retirement plans. That’s a mistake because couples who jointly plan their retirement can be much better off when they stop working.
Most people have a good idea of what their house is worth, and the same attitude should apply to their retirement funds. After a lifetime of saving, the value of a retirement fund can be worth as much as a property so it’s important that people know how much their retirement savings are worth and the potential death benefits they offer.
The best way for people to ensure they have the retirement they want, their pension income lasts throughout their retirement and that they avoid unnecessary tax bills is to obtain professional financial advice. This is especially true for people who plan to retire within the next five years.
On retirement, many people’s first instinct is to request their full tax-free cash entitlement. However, unless a large lump sum is needed
for a specific purpose, this is not always the wisest course of action. If flexibly accessing a pension, it can often make sense for couples to retain most of the tax-free cash entitlement until a later date, looking to utilise the personal allowance (and potentially the basic rate tax band) to draw tax-efficient income instead.
When you and your spouse married, you agreed to share a financial future. It’s an important issue for most married couples. Although successfully managing finances in marriage is essential to your happiness together, talking about money may not come naturally. To discuss how we could help you plan your finances, please contact us for more information.
Source data: [1] LV= surveyed 4,000+ nationally representative UK adults via an online omnibus conducted by Opinium in June 2021. [2] Includes couples in civil partnerships. UK population stats from ONS. Total UK adult population is 52.7m UK adults (aged 18+).
You can usually choose to take up to 25% of your pension pot as a tax-free lump sum when you move some or all your pension pot into drawdown, from the age of 55.
You will need to carefully consider where to invest the remaining 75% (or less if you have not needed to take the full 25%), taking your likely income needs and attitude to risk into careful consideration.
This video highlights the options that you could have at retirement, specifically Pension Drawdown, what it means and the things that you need to consider when planning for your retirement.
Be better off in retirementImagine you’re retiring today. Have you thought about how you’re going to financially support yourself, and potentially your family too, with your current pension savings? The run-up to your retirement may feel overwhelming, but this is an important time for you and your savings.
Following the pensions reforms, there are now more options available than ever and this has removed the compulsion to purchase an annuity. It also means that you can use your pension fund to benefit your named beneficiaries, whoever they may be.
If you are approaching retirement it’s time to think about what you’re going to do with the money you’ve been working hard to save all these years. The average UK pension pot after a lifetime of saving stands at £61,897[1]. With current annuity rates, this would buy you an income of only around £3,000 extra per year from age 67, which, added to the maximum State Pension, makes just over £12,000 a year – just enough for a basic retirement lifestyle.
In more recent years, when it’s time to take a retirement income, some people are choosing to do so through pension drawdown. Pension drawdown provides a way to establish a flexible income, set at whatever level you choose, which can be increased or decreased over time to match your needs.
For many, this may seem a more fitting solution to their retirement needs than purchasing an annuity, which is a more established option that typically offers a set monthly income for life. However, although pension drawdown offers flexibility and control, there are differences to consider.
While annuity income is fixed for life, pension drawdown can only continue for as long as you have savings remaining – and once they’re gone, you’ll receive nothing. So, it’s important to receive professional financial advice to ensure that you withdraw your money at a rate that will last your expected lifetime.
It’s important to consider that your retirement could last for 30 years or more, depending on when you retire and how long you live. This is why some people use pension drawdown as the option to provide their retirement income. Your savings remain invested even after you retire, which means they have the opportunity to continue growing through investment returns.
But it’s impossible to predict exactly how much they will grow each year. Some years they will grow more than others, and some years they may fall in value. If your rate of withdrawal exactly matched your growth rate, your savings could last indefinitely. But, because growth is so hard to predict, this is near impossible to do.
A 4% withdrawal rate is typically stated as a guide for how much you can withdraw each year from your retirement savings. This figure is estimated based on the history of the financial markets and how much investments have tended to grow over periods of around 35 years (the expected duration of retirement for someone who retires in their sixties).
So, if you have £500,000 in savings when you retire, 4% would initially equate to £20,000 a year.
However, there are a few additional details that mean this figure can’t be used totally reliably:
So, a 4% rate of withdrawal could be either overly cautious, resulting in the accumulation of wealth that could create an Inheritance Tax
liability, or overly reckless, resulting in complete depletion of your savings when you still have years left to live.
In this world of ours, very little stands still. The same can be said for the pensions landscape. As high earners are faced with even more restrictions and potential pitfalls, it is vital to understand the rules and seek specialist advice. Start talking to us today about your future retirement plans and we can help you make sure it’s a resilient one.
If you’re approaching or have already turned 55, you might be wondering what is a good pension pot value to aim for. This will naturally
depend on your circumstances. To discuss your requirements, please contact us.
Annuities – guaranteed income for life
Flexible retirement income – pension drawdown
Uncrystallised Funds Pension Lump Sum
Combination – mix and match