Pensions on Divorce: Are Women Missing Out?

New research published by Scottish Widows has highlighted the importance of addressing pensions as part of any financial settlement following divorce.

Worryingly, the research shows that 71% of divorcing couples do not discuss pensions as part of their settlement. For many reasons (such as women earning less during their lifetime due to pay differentials, career breaks and so on), women’s retirement prospects are much more likely to be negatively impacted by divorce than men’s. In fact, 40% of the women asked felt that their retirement prospects had been worsened by divorce (in comparison, only 19% of men felt the same).

Scottish Widows have found that 48% of women have no idea what happens to pensions when a couple gets divorce, and recommend that the Government make the inclusion of pensions in divorce proceedings compulsory. That would certainly help, but it wouldn’t resolve the issue.

There is no easy, quick or cheap way of resolving the question of what, if any, pension sharing order is appropriate. The first step is often to look at and compare the ‘cash equivalent value’ provided by the pension provider. This can, however, be misleading. It is meant to be equivalent to what it would cost to buy the pension income entitlement the pension holder has with that scheme. But for example, if you have a defined benefit scheme the value will be determined using actuarial principles, requiring assumptions to be made. In short, a pound in one pension is not necessarily equal to a pound in another pension, and neither is equal to a pound in a savings account or invested in property.

What is more, an equalisation of the ‘cash equivalent values’ of the couples’ pension pots is unlikely to provide the woman with the same level of income as it will the man. Following a long marriage, an equalisation of the income to be generated from the pensions build up during that marriage may be appropriate. The capital division required to achieve that will be calculated with consideration of the parties ages, health and lifestyles.

Another complicated and potentially dangerous tool used to enable couples to separate their finances and move forward is offsetting. With apologies for the generalisation, women, and especially mothers, often prioritise their current housing over provision for themselves in their retirement. In doing so, they look to offset their pension claims to achieve a greater percentage of the capital assets. In an exercise undertaken by Rhys Taylor, of 36 Bedford Row, and Hilary Woodard, an Associate of the Cardiff School of Law and Politics, with the assistance of a number of leading pensions experts, it has been shown that the calculations of the fair figure to offset a pension sharing claim can range hugely. Offsetting has an inherent risk that you are doing a ‘bad deal’ but also leaves women without any or adequate pension provisions.

Talk to IBB Solicitors about divorce today

The divorce process can be long-winded, confusing and stressful. For expert insight and friendly advice, talk to experts at IBB Solicitors today. Whether you’re looking for a quick, stress-free end to your marriage, want to contest parts of your separation or simply want more information on the divorce process, we can help. Call us with no obligation today on 03456 381381 or email us at familylaw@ibblaw.co.uk