Pensions and Divorce Page

Divorce and my Pension

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  • The UK currently holds £15.2 trillion pounds in household wealth
  • Private pensions represent the biggest single component of this wealth – at around 42% of the total (£6.4 trillion)
  • Agreeing a fair separation of this pension wealth at a time of divorce will be critical to the future financial wellbeing of both parties

If you’re going through a divorce and would like to discuss your options regarding your pensions then please contact us.

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We Explain Divorce and Finances

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Divorce is often referred to as one of the most traumatic and stressful events anyone can go through, and it can also be a costly experience. Financial Planner, Carol Lammy-Steele explains how she helped one of her clients through this difficult life experience.

If you’re going through a divorce, one of the many things you’ll need to think about is your pension. If you would like to discuss your options, please contact us.

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A male looking sad when thinking about his pensions and divorce

Divorce and Pensions

 560 315 Jess Easby
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A male looking sad when thinking about his pensions and divorceEnsuring an equal division of all the assets within the matrimonial pot.

The breakdown of a marriage is often referred to as one of the most traumatic and stressful events anyone can go through. Divorce can also be a costly experience, often including legal fees, a new home, a new car and new childcare costs. So, it’s perhaps predictable that so many need to rely on savings or credit cards for support during this time.

When dealing with finances on divorce, the starting point is an equal division of all the assets within the matrimonial pot. It’s critical that, as part of the separation process, couples take time to think about and discuss one of their single most valuable assets, their pension.

Relevant factor in any divorce

It’s common that one party will have significant pension provision, and the other party may have little or none. Clearly, this could be a relevant factor in any divorce.

Figures[1] show that in 2020 there were 103,592 divorces granted in England and Wales, but with a new law that came into force on 6 April 2022 making it much easier for couples to get divorced through a ‘no fault’ plea[2], this figure is likely to increase in the coming years.

Impact of divorce on finances

Thinking about family finances may be the last thing couples want to do at this difficult time. However, it’s important to understand the impact that divorce will have on finances, including pensions.

The UK currently holds £15.2 trillion pounds in household wealth[3]. Private pensions represent the biggest single component of this wealth – at around 42% of the total (£6.4 trillion). Agreeing a fair separation of this pension wealth at a time of divorce will be critical to the future financial wellbeing of both parties.

Average age reaches an all-time high

As a result of divorce, as many as nearly one in five (19%) say they will be, or are, significantly worse off in retirement. The average age for getting divorced has reached an all-time high of 47 years and 5 months for men and 44 years and 9 months for women[4], so it’s fair to assume that the levels of wealth accumulated in couples’ pension pots may also be fairly high.

The research suggests that;

  • one in seven (15%) of divorced people didn’t realise their pension could be impacted by getting divorced
  • and more than a third (34%) made no claim on their former partner’s pension and it was not included as an asset in the settlement when they did divorce.

Significantly worse off in retirement

Worryingly, almost one in twelve (8%) divorcees say they didn’t have their own pension savings as they were relying on their partner to finance their retirement. As a result of divorce, as many as one in five (19%) say they will be, or are, significantly worse off in retirement. It’s critical that, as part of the separation process, couples take time to think about and discuss one of their single most valuable assets, their pension.

To supplement their income following a divorce;

  • a third of divorcees (32%) said they dipped into their savings
  • one in five (20%) used credit cards for everyday living expenses
  • a similar number (18%) borrowed from friends or family
  • and just over one in seven (15%) regularly sold clothing/toys/other household items just to make ends meet.

Future retirement income at risk

One in eight (12%) respondents admitted to having to go out to work, having not worked before their divorce, or get a second job (10%). Worryingly, one in eight (12%) also cut back, or cancelled, their pension contributions – putting their future retirement income further at risk.

There are several options available to the Family Court when dealing with pensions and divorce – pension sharing, earmarking and offsetting against other assets[5]. It can often be a very complex issue so, as well as hiring a family lawyer, couples should consult a professional Financial Adviser to walk them through the pension valuation and financial process.

How can we help with your pension?

If you’re going through a divorce, one of the many things you’ll need to think about is your pension. What will happen to it? Who will get
what? These are important questions to ask, because pensions can be a significant asset in a divorce settlement. If you would like to discuss your options, please contact us.

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Source data: The research was conducted by Censuswide between 07/04/2022!13/04/2022, with 1,008 respondents who have been through a divorce in the UK. Respondents are referred to as divorcees or divorced people throughout.

[1] Divorces in England and Wales – Office for National Statistics (ons.gov.uk)
[2] New divorce laws will come into force from 6 April 2022 (gov.uk)
[3] Total wealth: Wealth in Great Britain (ons.gov.uk)
[4] Divorces in England and Wales – Office for National Statistics (ons.gov.uk)
[5] Aviva Adviser: Pension and Divorce (avivab2b.co.uk)

Pensions and Divorce

 560 315 Jess Easby
By:

  • The average age of divorce is now 47 for a man and 44 for a woman
  • One in seven (15%) didn’t realise their pension could be impacted by getting divorced
  • A third (34%) made no claim on their former partner’s pension when they divorced
  • One in twelve (8%) divorcees don’t have their own pension and were relying on their partner to finance their retirement
  • One in five (19%) divorcees will be significantly financially worse off in retirement because of a divorce

Source: https://www.aviva.com/newsroom/news-releases/2022/05/thousands-risk-pension-poverty-after-divorce/

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Financial Advice: Enhancing People’s Lives

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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.

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a child sitting with their parents who are getting a divorce

Mind the divorce gap

 560 315 Jess Easby
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a child sitting with their parents who are getting a divorceWomen see incomes fall by 33% following divorce, compared to just 18% for men. Divorce is an emotionally charged event – and can be an expensive one. The financial impact of divorce can also last for decades and carry on into older age. Women are also often impacted harder financially by divorce, new research highlights.

Many women are likely to see their household incomes fall by a third (33%) in the year following their divorce, almost twice as much as men (18%) and are significantly more likely to waive rights to a partner’s pension as part of a divorce (28% women versus 19% men)[1].

Financial struggle post-divorce

Women are more likely to face a financial struggle post-divorce (31% women versus 21% men) and worry about the impact on their retirement (16% women versus 10% men).

Office for National Statistics (ONS) data shows, on average, women already have a significantly smaller pension pot than men. There are many reasons driving this disparity, one being that women are typically paid less, while men who divorce are far more likely to have been the primary breadwinner in the relationship (74% men versus 18% women).

Greater degree of financial burden

This is why women will likely feel a greater degree of financial burden if transitioning to a single-income household and are likely to face financial struggles following a divorce from their partner (31% women versus 21% men).

This is particularly true for older women who divorce. One in four divorces occur after the age of 50 and women are significantly more likely to worry about the impact of their divorce on their retirement (16% women versus 10% men).

Rights to a key financial asset

While there is only a slight difference in the number of men and women who feel that the division of their finances at the point of divorce was fair and equitable (54% men and 49% women), the research found that many women may be signing over their rights to a key financial asset.

Women are significantly more likely to waive their rights to a partner’s pension as part of their divorce (28% women versus 19% men). This could have a significant long-term impact, particularly as women tend to have less personal pension wealth, according to the most recent findings from the ONS [2].

Plan to protect your financial future

In most families, the two largest assets are the family home and a pension fund. If you’ve made the decision to file for divorce, it’s time to gather as much information as you can and figure out the plan to protect your financial future. Please get in touch to find out how we can help you – we look forward to hearing from you.

A pension is a long-term investment not normally accessible until age 55 (57 from April 2028). 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. The tax implications of pension withdrawals will be based on your individual circumstances, tax legislation and regulation which are subject to change in the future. You should seek advice to understand your options at retirement.

Source data:
[1] Opinium Research for Legal & General ran a series of online interviews among a nationally representative panel of 2,008 UK adults aged 50+ who are divorced from 19-23 September 2020.
[2] https://www.ons.gov.uk/peoplepopulationandcommunity/personalandhouseholdfinances/incomeandwealth/bulletins/pensionwealthingreatbritain/april2016tomarch2018
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