Pension Inequality After Divorce

Around 100,000 couples divorce annually in England and Wales and the financial arrangements they make can determine the future standard of living that they and their children will have for many years.  A new study by the University of Manchester has highlighted significant gaps in the value of pensions between divorcing men and women.

The latest research shows that, for those aged 65 to 69, the median pension wealth for men is just over £212,000 compared to only £35,000 for women within the same age bracket.  Interestingly, married men were found to have the most pension wealth.  Whilst this could arguably be used to support both parties whilst in a marriage, the inequality of the situation is highlighted upon divorce.

Since 2000, pension assets can be shared on divorce.  This change was implemented primarily to address concern over the poverty of older divorced women.  Analysis of data from 2006 showed that for all women, being divorced and/or widowed significantly increased the odds of being in poverty and dependent upon the state for income after pension age.

There are a range of orders which can be made upon divorce as follows:

• No order: each party keeps their own pension.
• Pension attachment orders: enable the Court to direct that regular payments, a lump sum or lump sum death benefit are paid to the former spouse at the time that these benefits become due.
• Pension sharing order: a set amount of the pension is paid out and invested into a separate scheme in the other spouse’s name. This is the most common method of sharing pensions on divorce.
• Offsetting: this allows one party to retain their pension fund and the other spouse will retain a greater share of the matrimonial assets.

90% of couples have some private and/or occupational pension wealth between them, with more than half having a combined pension wealth above £140,000.  Yet figures suggest only 12% of divorce cases involve any type of pension sharing.

Divorced women not cohabiting in their late 60s have less than 30% of the pension of men in an equivalent position.  The study suggests that this is not only due to the initial inequality of pension pots but further that women prefer to take a share of assets in the form of property, typically the family home, rather than in pension assets.  It is important that full advice is taken in regard to potential pension sharing orders at the time of a divorce as £1 in a pension is not equivalent to £1 in the family home and some pension schemes can work out to be even more valuable than the family home in the long run.

The Family team at IBB Law regularly advise clients on the treatment of pensions on divorce in terms of both pension preservation and pension claims. In the majority of cases, we will instruct a pensions expert to advise instructing a pension expert, in order to determine how to approach the sharing of what is often one of the most valuable assets on divorce. We also have internal financial advisers at IBB wealth who can advise clients in respect of pension issues and interpretation of expert pension reports.

Speak to our Family Law Experts

Yasmin Kibble is a solicitor in the Family team and can be contacted on 01895 207 834 or yasmin.kibble@ibblaw.co.uk.