The average divorced woman over 50 will have a pension worth three times less than the average married couple of the same age, according to an analysis of the government’s latest Wave of the Wealth and Assets Survey conducted by Fidelity International.
An analysis of the data surveyed between 2014 and 2016 reveals the average divorced woman will have a pension worth £131,000, compared to £454,000 for an average married couple.
Additionally, some 12 per cent of married women surveyed said that they plan to rely on their spouse’s pension during retirement, and 17 per cent of married women surveyed had no pension of their own at all.
While a woman may be entitled to claim a portion of her spouse’s pension in a divorce if, for example, her spouse’s work or family life had impacted her ability to work and save, pension sharing is a laborious, time consuming, and costly process and should not be approached lightly.
While a spouse may have expected to share their partner’s pension in retirement, pension sharing arrangements are not always resolved amicably.
“Divorce is a challenging and stressful time for all involved…the emotional toll is only half of it,” says Emma-Lou Montgomery, associate director at Fidelity International.
“While giving some thought to what you would need in retirement, should your marriage break down, admittedly isn’t the most romantic of things to do, it’s important to be realistic.”
She adds: “Aside from making arrangements early on to ensure both parties are protected, partners who continue to work can also help boost their partner’s pension by making contributions for them during any time off work.”
To ensure your divorcing clients' finances, and chances of building up their retirement savings, are not adversely affected by the divorce, it is important to understand what the different pension sharing options and what they can deliver.
Splitting retirement savings
Because rebuilding a pension fund following a divorce can be difficult, one of the very first things to consider is what party has the most scope to rebuild their pot following divorce.
“For many couples, their pensions are highly valuable assets – often more valuable than the family home,” says Paul Falvey, tax partner at BDO LLP.
So agreeing how pensions are dealt with on divorce proves vital to the financial future of both parties.
Mr Favley adds: “As pension assets must be taken into account and will be part of the final settlement, cooperating over asset allocation can save both parties money as it allows assets to be dealt with tax-efficiently.”
However, unlike many other assets, he notes there is also “a swathe of tax legislation to be taken into account when sharing out pension assets”.
When it comes to splitting pensions, there are different rules depending on if it is a defined benefit or defined contribution pension.
