The importance of pensions on divorce
- AuthorShelley Cumbers
According to a recent report prepared by the workplace pension scheme Nest, women are, on average, between £41,000 to £70,000 worse off at retirement than their male counterparts.
This is due to the pension gender gap caused by the extra challenges faced by women when saving for retirement. Such challenges include the greater number of women working part-time and in lower-paid jobs compared to men. This limits their ability to contribute into their pension. The fact that women live longer than men – on average by 3.7 years – means their pension savings need to last longer.
The events of the last year, particularly the effects of the global coronavirus pandemic, are likely to have a further significant impact on this issue. Families have, and will, continue to face financial uncertainty and strain due to job security, redundancies and businesses being unable to operate. For many families, their immediate needs for housing, food and clothing will understandably take priority during these unsettling times. Contributions towards pensions may reduce, or cease altogether, as families focus on now rather than the future.
The report also finds that women are less likely to plan for retirement. Almost 75% of women stated that they do not know how much they will need in retirement (compared to 52% of men). Only 36% of women seek general professional financial advice (compared to 46% of men). Interestingly, from a family lawyer’s perspective, the report also finds that only 14% of divorce settlements include pension sharing. This leaves women more vulnerable to financial hardship, especially in the long term.
It is against this background that an assessment of pensions must never be overlooked if you are involved in or contemplating divorce proceedings. It may be necessary, depending on your circumstances, to seek a share of your spouse’s pension assets.
Understandably, for many couples, their first consideration is to ensure they have sufficient financial resources to meet their housing and income needs, such that they will focus on how to deal with their family home and any capital assets such as savings and investments.
If there are children of the family, then their needs will take priority to ensure they have a home and sufficient income coming into that household to meet their daily needs. Divorcing couples may look to sell their family home and divide the proceeds accordingly. Alternatively, a property may be transferred from joint names into the sole name of one party, on the basis of a lump sum being paid to the other party immediately or on a deferred basis.
There may be business assets involved and divorcing couples will need to address how such assets will be dealt with on divorce. In the current climate, this may be a difficult issue to resolve as many businesses are struggling due to recent events affecting the economy, including Brexit and the pandemic.
Further, there should be an assessment of both parties’ respective incomes and financial resources to address the question of whether maintenance should be paid to the husband or wife and, if so, for how long or whether there should be a clean break. If there are dependent children, child maintenance must also be addressed depending on the arrangements for the children and the financial circumstances of the family.
However, at an early stage of divorce, separating couples should be urged to consider their respective pension assets to ensure these are not overlooked as part of the financial settlement. As well as having capital and income claims, spouses have a financial claim on divorce to share their husband or wife’s pension. Since 2000, the Family Court in England and Wales has the power to make a pension sharing order.
What is a pension sharing order?
In essence, a pension sharing order requires a specified part of one spouse’s pension to be transferred into a separate pension pot for the other. They then have independent pension funds as they head towards retirement.
There are many different types of pension assets. It is important for divorcing couples to obtain up-to-date valuations and information about their pensions. Their value and benefit can be fully considered as part of the overall settlement.
Depending on the complexity and value of the pensions, it may be necessary to consider appointing an independent pension actuary to provide expert advice on such issues. At the very least, it is helpful to obtain an up-to-date cash equivalent transfer value (often referred to as a CEV/CETV) for all pension assets held by the parties. Also, information as to the likely benefits payable on retirement and any charges imposed by the relevant pension provider for implementing a pension share.
If you have taken a step back in your career to look after the children and either not returned to work, or done so on a part-time basis, it is quite possible that there will be a disparity in the value of your pension assets (assuming you have a pension plan) compared to your spouse. This may need to be addressed as part of the overall financial settlement on divorce.
Given the pension gap, it is vital that the question of pension sharing is not overlooked on divorce and that proper consideration is given to this issue. The advice of an independent financial adviser should also be considered to assist in making sensible and informed decisions as to your retirement planning and longer-term financial needs.
If you would like further advice on this issue, please contact our expert divorce solicitors for a free 15-minute call to discuss your own situation.
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