Most of us do not like thinking about planning for our retirement. We often say tomorrow but for many of us tomorrow never comes.
However if you are getting divorced you have to face the prospect of the end of your marriage and sorting out financial claims, including pensions. The temptation, when there is so much stress and a need to move on with your life, is to accept a financial settlement without paying enough attention to pensions. After all, there is always tomorrow.
Research from Royal London says that women who divorce end up with less than half the property and assets of married couples and, more importantly, less than one third of the average pension pot.
Royal London are rightly encouraging those who are divorcing to recognise the value of pensions and to take pension advice to make sure , in Royal London’s words , that divorced women do not continue to be ‘pensions poor relations’.
The Royal London research analysed the data from the government’s Wealth and Assets Survey (WAS), and looked at the pensions and property of divorced women compared to with married couples.
The main points that came out of the Royal London research were:
For women who are aged over fifty the average married couple has three times the pension wealth of the average divorced woman; and
Women who are aged over fifty and divorced do not have more equity in their family home to compensate them for lack of pension wealth.
Some may shrug off this Royal London research, thinking that it is very specialist. However, one in three women aged 55 to 70 will experience marital breakdown or divorce. Therefore, whilst Royal London has looked at complex data it is a common problem, the effects of which are only appreciated long after a divorce and when a woman comes to draw her pension income.
Divorce and pension rights
As a specialist Manchester family law solicitor advising on divorce and pensions claims my experience shows there are a number of reasons why pensions are not properly considered on divorce. The main reason that pensions are not divided fairly is that people do not understand them and think that they will have many years to worry about building up a pension.
There is often a reluctance, on the part of both husband and wife's to get a pension report from an actuary or pension expert. That is partially because people worry about the cost of a report and partially because they do not see the relevance of a report. Frustratingly, from a Manchester divorce solicitor and pension expert’s point of view, the importance of the pension report often only becomes apparent after you have received the report.
Nowadays I tend to ask if someone would buy a house without a survey. The answer is invariably no, and a puzzled glance questioning why I would even contemplate buying a house without a surveyor’s report. However, pensions can be just as valuable as a family home and so they need to be treated with the same respect.
The other reason people do not look at pensions seriously on divorce is that retirement, even if it is five or ten years away, seems a very long way off indeed. A pension expert will tell you that it is not and even ten years of making pension payments into a pension scheme may not recoup what you have missed by agreeing to an unfair division of the pension assets on divorce.
When you are getting divorced, it is hard to get to grips with all that is happening in your personal and financial life. That is why you need an expert divorce solicitor. They in turn need to be helped by a pension actuary or expert to look at the true value of the pension pot and to consider your pension and financial settlement options.
When you get divorced and sort out financial disclosure, you will be presented with what is called the cash equivalent transfer value of your pension and that of your spouse. The paperwork and figures may look impressive but they can be highly misleading.
If you have a private pension with a transfer value of £100,000, you would think that your pension pot is as valuable as your spouse’s final salary pension pot with a transfer value of £100,000. You would therefore assume that a fair financial settlement would involve you both keeping your pensions, with no need for a pension sharing order.
You could not be more wrong as a pension actuary may tell you that the occupational pension will pay out three times the pension income of the private pension scheme. That means if no pension sharing order is made one spouse is on triple the pension income of the other spouse.
It is important that even if you are a bit hazy about pensions that you chose a divorce solicitor who knows about pension rights and the importance of getting expert help from a pension or financial advisor or actuary.
As a Manchester divorce solicitor, I know how vital it is to protect someone going through a divorce. Divorce and pension rights are not likely to be a priority topic but I know my job is to look at both short term and long term interests, and that normally includes the option of a pension sharing order.
By Robin Charrot
For information and advice about pensions and financial claims on divorce please call me on +44 (0) 1477 464020 or contact me by email at firstname.lastname@example.org
Appointments available in Prestwich, Manchester and Holmes Chapel, Cheshire