Greater consideration of pensions needed in divorce settlements

It is “imperative” that time is taken to consider how a pension should be shared fairly when they represent a significant resource within a divorce settlement, Winckworth Sherwood has warned.

Winckworth Sherwood senior associate, Jim Richards, pointed out that evidence dating back to the 1990s has shown the effect of a relationship breakdown on the position women find themselves in later in life.

Richards highlighted the research as “grim reading”, having revealed that 40 per cent of women were living in poverty at the time.

“Doubtless there were many explanations for this, but the distinguishing characteristic from their husbands, former husbands that is, was that the men generally speaking had far better pension provision and fewer lived in poverty in old age,” he said.

"Partly as a result, in 2000, the power to make pension sharing orders on divorce was implemented.”

However, Sherwood warned that pension sharing orders have not faired very well since their introduction some 20 years ago, flagging recent research from Manchester University, which showed that in only 12 per cent of divorce settlements were pension sharing orders made.

The research also found that while 90 per cent of couples have some pension wealth between them, in about half of couples with pensions, one partner has more than 90 per cent of the pension wealth, while fewer than 15 per cent of couples had equal pension provisions.

“As a result, the position that divorced women find themselves in remains parlous,” Richards said, suggesting that generally speaking, men and women seem to have very differing priorities, within women prioritising a home above pension provision.

“The exact opposite is the case with men,” he explained. “As a result, women still potentially face similar difficulties to their big sisters in the era before pension sharing orders were available.”

In light of this, Richards warned that greater consideration needs to be given to pension provision, emphasising that life expectancies are expected to continue to rise, with women in particular having longer life expectancy, which can impact the pension provision needed.

Indeed, recent research from Scottish Widows found that, given the savings gap and longer life expectancy, women in their 20s will need to save an average of £185,000 more than men their age over their working life to have the same income in retirement.

Richards argued that given these reasons, it is "imperative" that if pensions are a significant resource within a divorce settlement, time is taken to consider how this should be shared fairly.

“Fairness means providing equality of income in retirement and reflecting the differing contributions which are made by the respective parties during a marriage," he continued.

“The fact that one person has worked (generally the husband), while a wife may have given up her career, raised children, and not contributed to a pension fund is something which the courts can, and will, take into account if a financial application is made."

Richards also stressed, however, that expert advice is needed at an early stage from a team of lawyers, actuaries and financial advisers who can guide savers “safely though the minefield which financial settlements can often present”.

“Options can be considered, and realities checked to ensure that the best possible outcome is achieved on your behalf,” he continued. “Failing to do this can result in the level of poverty which has been described at length for many years now and that can be avoided if the circumstances allow it.”

Previous research from Salisbury House Wealth revealed that around 10,500 people were ordered to share their pensions with a former spouse as part of a divorce settlement in 2020, with investment performance making pension pots an “increasingly covetable asset”.

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