Long-awaited ‘no fault’ divorce rules came into force in April, making it easier for couples to split amicably, but experts warn that it could result in them failing to factor in retirement savings when separating their finances.
According to research by pension provider Aviva, couples looking for a quick and easy divorce could end up skimming over pension savings while sorting out seemingly more pressing concerns such as finding a new home or working out childcare arrangements.
Aviva’s analysis of Office for National Statistics’ data found that people are increasingly getting divorced later in life, often when they’ve built up significant retirement savings. The current average age of divorcees is 47 for a man and 44 for a woman, an age range where the average person’s median private pension wealth sits around £88,100 (ONS). As you enter your 50s, when divorce rates are also high, your pension savings are likely to be higher than this, with the ONS data showing that those aged between 55 and 64 have average private pension wealth amounting to £208,300. This means for many people, their retirement savings may be of the biggest assets they might hold.
Worryingly, however, more than one in 10 (15%) divorcees were unaware that their pension could be impacted by divorce, and a third of people made no claim on their partner’s pension when they split up. This is despite the fact that it’s very common for one half of a couple to have more pension savings than the other, with as many as 8% of divorcees admitting they don’t have their own pension.
Emma Watkins, Managing Director at Scottish Widows said that women are at particular risk of coming out of a divorce financially worse off. “With these changes, the risk of unfairness when financial assets are split is ever-present and, we know from historical evidence, it’s likely that women are often left short-changed.” she said.
“Typically, women’s retirement prospects are already worse than men’s but add in a divorce and they deteriorate even further. Despite pension pots commonly being the second largest, if not the largest, asset a couple owns, they often go ignored during divorce, mistakenly seen as a personal possession, rather than shared. In fact, our analysis shows this is costing women up to £5bn a year.”
Of course, it’s not just women that could end up worst affected, but it reinforces the importance of talking about pensions during divorce discussion. Alistair McQueen, head of savings and retirement at Aviva said: “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.
“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. There are several options available to the Family court when dealing with pensions at divorce – pension sharing, earmarking and offsetting against other assets. It can often be a very complex issue so, as well as hiring a family lawyer, it would be advisable for couples to contact a financial adviser to walk them through the pension valuation and financial process. You mustn’t underestimate the value of pensions at this time.”
Find out more about how your pension might be affected by no fault divorce rules in our guide No-fault divorce becomes law – what this means for your pension.
If your relationship is ending, and you need help dividing your money and property or making arrangements for your children, amicable is a trusted legal service for separation and divorce. Unlike solicitors, amicable works with couples and offers a fixed-fee service that includes VAT to help manage all aspects of separation so that you can agree on the best way forward for your family and your finances. Get in touch to explore how they can help you separate in a kinder, better way.
Divorcees borrow to make ends meet
Of course, it’s not only pension savings that are impacted by divorce, and many people end up financially stretched as they adapt to single life. Around a third of those questioned by Aviva who’ve been through a divorce said they had to dip into savings to make ends meet, whilst 20% used credit cards, 18% borrowed from family or friends and 15% sold personal items. In addition to this 12% report having to re-enter the workplace since their divorce, while 10% have had to get a new job to adapt to the move from joint income to their single income.
Mr McQueen said: “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.”
Overall, Aviva says that nearly 20% of divorcees will be significantly financially worse off in retirement as a result of their relationship ending, and if the number of people filing for divorce continues to grow, this figure could increase. If you expect your financial situation to suffer significantly following divorce then you may want to explore whether you could be eligible to claim benefits. Read our article Am I entitled to any benefits if divorcing or separating? for more information.
So while it’s completely understandable to want to get through the divorce process as quickly and as easily as you can, it’s really important to not skip over the difficult conversations around finances and to know what your rights are. If you would like to know more about pensions and divorce, have a look at our articles How are pensions shared in a divorce?, Divorce laws: the basics and First steps if you are getting divorced.
If you are already divorced or are in the process of divorcing and aren’t sure where you stand with your pension, you might want to seek advice.
If you’re thinking about getting professional financial advice, you can find a local financial adviser on VouchedFor or Unbiased.
Alternatively, if you’re looking for somewhere to start, we’ve partnered with independent advice firm Fidelius to offer Rest Less members a free initial consultation with a qualified financial advisor. There’s no obligation, however if the adviser feels you’d benefit from paid financial advice, they’ll talk you through how that works and the charges involved.
Fidelius are rated 4.7 out of 5 from over 1,000 reviews on VouchedFor, the review site for financial advisors.
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