Pension pots can be one of the most valuable assets belonging to couples, yet new research has found that these important savings are often being left out of divorce settlement calculations.
According to the study by Scottish Widows, 70% of couples don’t consider pensions during divorce proceedings, leaving women short-changed by £5bn every year. The average married couple’s retirement pot apparently amounts to £132k, which is more than five times the average UK salary (£26k) and just over the average price of a house in Bradford.
In fact, the research found that more married people would be concerned about losing a pet during a settlement than sharing a pension (13% vs 9%).
Comparable research conducted in Scotland found that women are losing out around £337 million a year, with an average couple’s retirement pot totalling £109k.
Overall, women are less well prepared for retirement than men, with 52% saving adequately for the future compared with 59% respectively. This figure falls to below half (49%) for divorced women, with nearly a quarter (24%) saying they are unable to save anything at all into a pension, twice the rate of divorced men (12%) saving nothing. Furthermore, two-fifths of divorced women (40%) say their retirement prospects became worse as a result of the split, compared with just 19% of men.
Even if pensions are discussed during a divorce settlement, women are still missing out – 16% lost access to any pension pot when they split with their partner and 10% were left relying completely on the State Pension.
Almost half of women (48%) have no idea what happens to pensions when a couple gets divorced, which may explain why so few couples consider them as part of a settlement. A fifth (22%) presume each partner keeps their own pension and 15% believe they are split 50/50, no matter what the circumstances.
In reality, pensions can be dealt with in a number of ways on divorce. The starting point should always be to find out what pensions there are, what are they worth and how they fit with any other assets such as property and savings and each spouse’s needs for a home and income.
If an adjustment needs to be made to get a fair overall outcome on a divorce this can be done by one person keeping their pension, but the other getting more of the other assets (called “offsetting”); or the court can make a pension sharing order giving a percentage of one person’s pension to the other (which could be 50:50 but often won’t be); or a combination of the two may be needed. However, pension sharing orders are made in just 11% of divorces.
“Generally speaking women’s retirement prospects are worse than men’s,” commented Catherine Stewart, Retirement Expert at Scottish Widows. “The persistent gender pay gap, maternity leave and career breaks can all hold back a woman’s earning potential and this often impacts pension savings. Relationship breakdowns can leave people really vulnerable but, quite simply, they’re also throwing significant sums of money down the drain.”
“It is important that everyone – whether single, married or divorced – take steps to understand their finances and prepare for their independent future should a relationship break down,” she added. “We would urge men and women to better understand the legalities around what happens to pension pots during divorce proceedings, as often they are the second largest, if not the largest asset a couple owns.”
For expert legal advice on divorce, including financial provision and pensions, then contact our specialist family lawyers today.