Are Pensions overlooked on divorce?

Monday 22 April 2013

A report recently published by the Phoenix Group contains some interesting findings about the treatment of pensions on divorce.

The findings suggest that:

• Only 6% of divorcees received a pension sharing or earmarking order as part of their divorce settlement
• 42% of women say that they were financially worse off after divorce
• After getting divorced 19% of woman stopped paying into a pension altogether
• 20% of divorcees have no idea at all about their pension provision since divorce
• 66% of female divorcees over 40 rely on the state pension in retirement only

The treatment of pensions on divorce is a complex area and one where specialist legal and financial advice is always required.  It is not uncommon for pensions to be the most valuable asset of a marriage, particularly when one or both parties are or have been members of public sector final salary schemes such as the Police, Armed Forces, Teachers, NHS and University Pension Schemes.

For illustration purposes the overall value of a typical Police pension after (say) 20 years of service will run into hundreds of thousands of pounds.

Pensions should always be taken into account on divorce.  We would suspect that the very low proportion of pension sharing orders made is most likely to because in some cases the pensions are so modest that the costs of implementing a pension sharing order charged by the pensions funds (often several hundred pounds) make it disproportionate to consider pension sharing; where the divorcing couple have only been together for a relatively short time; when the parties both have similar levels of pension provision; when any disparity in respect of pensions is “off-set” against other assets, for example when one spouse receives a greater share of the equity in the marital home and in return for that allows the other spouse to retain their pension fund intact and finally pensions are often completely overlooked by people who opt for a DIY divorce and do not fully appreciate their legal rights and what they are giving up by not pursuing pension claims.

What divorcing couples must bear in mind is that proper consideration should be given to pensions and the implications for their future which result from that. Sometimes it may appear on the face of it an attractive option to keep the house in return for forgoing pension claims. However, the impact of doing that may then be a retirement spent in poverty, potentially having to rely on the state pension only for a spouse who has not been able to or had insufficient time left to accrue a private pension of their own.

Specialist legal and financial advice should always be taken in these circumstances. The research by the Phoenix Group suggests that 26% of divorcing couples opt for DIY divorce, presumably with the intention of avoiding legal costs. However that decision can often lead to divorce settlements which fail to take sufficient regard to pensions, the financial implications of which would outweigh the costs of taking proper advice many times over.