Divorced Women are Less Prepared for Retirement

21 November 2017

For initial legal advice on Pensions in Divorce call our Divorce Solicitors on 03306069626 or contact us and we'll call you.

Recent research conducted by Scottish Widows found that divorced women are, as a demographic, not as well prepared for retirement as others. A quarter of the divorced women that they spoke to stated that they are not saving anything into a pension fund at all and 40% said that their retirement prospects became worse as a direct result of their divorce. This is a worrying statistic which highlights how important it is to take pensions into consideration when getting a divorce.

When considering the assets that need to be divided in divorce, most people recognise the family home as the most valuable asset. However, did you know that pension funds come a close second, with the average pension in the UK now being worth around £50,000? Surprisingly, despite this, a significant proportion of divorcing couples in the UK do not even discuss pensions as part of their settlement.

What’s more surprising is that, on average, women save significantly less into their pensions than men. Pensions belonging to men have an average value of over £73,000, while the average value of pensions held by women sits much lower, at just under £25,000.

Why are Women Saving Less?

There are many reasons why women may be saving less on average than men. It might be that traditionally, more women on average have given up work either to bring up children or for other reasons. This would mean that they would not be contributing any money into a pension fund during the time that they were not working.

Maternity leave can be another contributing factor. It’s common for personal pension contributions to fall during maternity leave as this will be relative to a reduction in weekly pay. However, the employer will continue to make contributions based on the employee’s salary before she went on maternity leave, so employer contributions will remain the same.

The fact that women are saving less on average than men could also be connected to the gender pay gap that exists between men and women. On average, women earn less than men over their lifetimes, meaning that women’s pension contributions would be proportionally lower than men’s. In order to achieve the same income in retirement as the average man, the average woman would need to contribute a higher percentage of her salary.

What Impact Does this Have?

The result of this is that a significant number of women could find that they are partially reliant on their spouse’s pension for financial support during retirement. This means that many divorced women are finding themselves under-prepared when they reach retirement age. Many are losing any access to a pension pot as a result of their divorce and some are finding themselves entirely reliant on the State Pension.

The end result is that many divorced women will have an insufficient income in retirement and may need to make significant changes in their day-to-day lives in order to make ends meet.

Being Prepared with a Financial Order

When getting a divorce it’s important to obtain a Financial Order from the Court. This will determine how a couple’s money and assets will be divided between them, taking pension savings into account.

When granting a Financial Order the Court can chose to redistribute pensions between the couple if they feel that this is the fair approach. It’s worth noting that this can only be done if a Decree Absolute is being granted to the couple, which will legally terminate their marriage.

How Can a Pension be Split?

If a pension is to be divided in divorce, then this will need to be very carefully calculated due to the complex nature of pension funds.

The calculation will be based either on the total value of the pension or the regular income that the pension would generate for each person in retirement. Other considerations will include the life expectancy of each person and any age difference that exists between them.

There are then three ways in which the pension can be shared between the couple:

  • Pension Offsetting – this is when the value of the pension is offset against other assets, so the person who is entitled to a share of the pension may instead accept an asset of equal value, leaving the pension with the original owner.
  • Pension Attachment – in this instance the pension provider will be asked to pay a percentage of the pension to the pension holder’s ex-spouse, at the time of the pension holder’s retirement
  • Pension Sharing – this is when all or part of an existing pension is split and divided between the couple at the time of the divorce.

Determining if and how a pension should be divided in a divorce can be very complicated. It’s therefore important to obtain independent legal advice from a Divorce Solicitor before agreeing to any financial settlement in a divorce.

For initial legal advice on Pensions in Divorce call our Divorce Solicitors on 03306069626 or contact us and we'll call you.

For more information see Pension Money Matters in Divorce.

To see the Women and Retirement Report 2017 from Scottish Widows please click here.

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