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Homepage / Business / Pension UK: These divorcees face being £77,000 worse-off - what are you entitled to?
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Business

Pension UK: These divorcees face being £77,000 worse-off – what are you entitled to?

Pension pots may not be the first thing on one’s mind when it comes to a divorce settlement, with physical assets often being a focus. However, according to the Pensions Policy Institute (PPI), the median pension wealth of divorced men and women by retirement is £103,500 and £26,100 respectively. Approximately 10 per cent of men and 14 percent of women in their early 60s are divorced. The PPI report “Understanding the gender pensions gap: report sponsored by NOW: Pensions”, said that this indicates a pension wealth reduction of a third for men but a half for women, thus suggesting women face a greater impact of divorce than men.

However, it seems that a third of Britons are unaware about what those who are married or in a civil partnership are entitled to.

Research commissioned by national law firm Shoosmiths found that 33 percent of Brits had no idea that married couples and those in civil partnerships are entitled to a proportion of their spouse’s pension if they split up.

The survey of 2,002 nationally representative adults also found that one in five have no idea what to expect when it comes to divorce.

Peter Morris, a partner in national law firm Shoosmiths who specialises in divorce and family law, said: “Shoosmiths research focussed on the situation in divorce and revealed that 33 percent of married couples (or those in civil partnerships) didn’t know that they are entitled to a proportion of their spouse’s pension if they split up.

“The situation is worse for couples living together or co-habiting who decide to separate.

“Despite what many people believe, there is no such thing in law as a ‘common law marriage’, so co-habitees are entitled to nothing at all when they split up.”

According to the PPI research, by their 60s, the median pension wealth for men is £156,500.

Meanwhile, women of the same age have a median pension wealth of £51,100.

Currently, 1.2 million women in their 50s are estimated to have no private pension wealth, and hence rely on the state pension system and their partner for a retirement income.

And, with women living on average 3.7 years longer than men, to draw the same pension income throughout their retired lifetime, women would need to have saved around five to seven percent more than men by retirement age, the PPI research said.

Mr Morris shared some insight into entitlement on divorce – such as pension attachment and pension sharing orders.

He said: “The court will first calculate the resources available and then look at how to distribute the resources between the parties.

“‘Resources’ includes all property owned by either party, whether they are pensions, personal belongings, land, shares, insurance policies or trust and business interests.

“In deciding how to distribute the resources the court will apply statute and case law principles.

This gives the court a complete discretion to divide the financial resources ‘fairly’ and this will often result in an equal division unless there are good reasons for taking a different approach.

What is a pension attachment order?

“A pension attachment order is a type of maintenance order which obliges the pension scheme to pay a certain percentage of the monthly pension payments to the divorced spouse,” Mr Morris explained.

“However, because a pension attachment order is really a form of maintenance paid from the pension fund direct rather than from the paying party, it does not allow for a ‘clean break financial settlement’ on divorce, which is what most divorcing couples want to achieve.”

What is a pension sharing order?

“A pension sharing order divides up the parties’ pension provision at the time of the divorce and leaves the parties with their own separate pension funds,” he continued.

“The advantage of a pension sharing order is that the assets are divided at the point of divorce, enabling the applicant to pay their share into their own pension pot, or start paying into a new scheme.

“The fund is immediately divided between the spouses, meaning the applicant knows what is going into their pension pot now and can plan ahead.”

Mr Morris added: “As the average age of people getting divorced rises, the courts are having to deal with more complex financial settlements, particularly in relation to pensions.

“Although pension pots can often be the second most valuable asset when people are going through a divorce, they are frequently overlooked.

“Couples (and sometimes their non-specialist lawyers) pay more attention to property and other more ‘obvious’ immediately concrete assets.

“Pensions may seem a distant prospect for couples of any age, but when it comes to divorce, it is important that advice is sought from specialist divorce lawyers and it is equally important that the specialist divorce lawyer looks carefully at exactly what benefits the pension offers, and obtains accurate valuation information, to avoid spouses losing out by choosing the wrong option.”

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