Pensions and Divorce
According to a study by the University of Manchester, the average married woman aged between 65-69 has just £28,000 invested in Pensions. By contrast, the average man of the same ages, has almost ten times that amount!
Perhaps partly explaining this, a Which study indicated that only 15% of divorcing couples (surveyed), include pensions in their financial settlement, overlooking one of their biggest joint assets.
These two studies highlight the importance of taking financial and legal advice when it comes to divorce.
Pensions are often the biggest single asset for divorcing couples, and make up 42% of household wealth, in comparison to property, which accounts for 36% of household wealth (according to the Office for National Statistics).
Whilst the law was changed in 2000 to allow divorcees to share pensions, it appears that many divorcing couples do not follow this approach, and typically underestimate how valuable the pension asset can be, unless they are approaching retirement age. Evidently, the family home is more likely to be at the front of individuals minds. However, choosing the family home over a pension sharing order can be a costly mistake, and leave former spouses struggling for income in retirement, and more often than not - women.
WHAT ARE YOUR OPTIONS?
1. Pension offsetting
This is where one party keeps their pension in exchange for giving up another asset (usually the family home).
The pros of this approach are that it allows for a clean break and is relatively straightforward.
The cons are that fair comparisons between non-pension and pension assets are extremely difficult, and the party who forfeits the other’s pension may lose out in the long term.
2. Pension sharing order
Under a pension sharing order, an agreed percentage of one party’s pension is transferred to the other.
The pros of this approach are that both parties end up with a separate pension.
The cons are that it can be relatively complex initially and it is advisable to take financial advice to ensure you are getting a fair split.
3. Pension attachment order
Under a Pension attachment order, one party pays an income or lump sum to the other when they themselves start drawing on the pension.
The pros of this approach are that it can result in a fairer split of the pension.
The cons are that it does not allow for a clean break.
An attachment order is essentially a form of maintenance paid to the former spouse. The pension-holder also retains control over the choice of investments and when the payments to their ex-partner are made.
Engaging the services of a qualified financial planner early on in the divorce process together with cash flow modelling, can prove invaluable, and help you avoid potential costly mistakes. The Patronus Wealth Planning Team in partnership with you can help you create a financial plan mapping out your journey to help you get where you want to be.