The importance of pensions in divorce

There have been some fluctuations in recent years, but overall divorce rates in the UK have been in decline since the 1990s. The most recent figures available are for 2023, when there were just over 100,000 divorces in England and Wales. A declining figure is good news, but of course is in part down to the fact that fewer couples are getting married in the first place.

What is still concerning are the statistics around how often pensions are considered on divorce. University of Manchester research in 2023 found that in about half of couples, one party held 90% of the pension wealth, with less than 15% of couples having an approximately even split. Despite this an estimated 71% of couples overlook the pension when getting divorced.

For women in particular, this is a truly alarming statistic, and plays a significant part in the gender pension gap.

Getting the pension sharing right can have a significant impact on the quality of life for the divorcee in retirement. In the emotional turmoil of divorce, it can be too easy to forget the pension, as the more pressing needs of housing and child support are at the forefront of the mind.

Often the pension is the second-largest asset, after the family home. Explaining the importance of this to clients – especially female clients likely to have smaller savings in their own name – is where advice can be invaluable. Thankfully the days of earmarking or attachment orders are largely over, and pension sharing orders can allow for a clean break which is nearly always better for all parties involved.

But the advice shouldn’t stop once the orders are finalised. It is important for those receiving pension sharing credits to have a plan of how to invest the money, and / or how to take benefits if they’re at that stage of life.

For some this may be their first pension savings outside a workplace pension. Having a plan of what to do with it is important not only to maximise the long-term gain, but also to allow the pension sharing order to be processed efficiently, and not put the client whose pension is being shared in limbo waiting for the transfer out to proceed. We often see cases where we are waiting months for the person receiving the pension credit to tell us where they want the transfer to go to. In this interim the client whose pension is being shared still has control of the investments but may have restrictions on taking benefits or transferring out until the order is dealt with.

Helping clients deal with pensions on divorce efficiently can benefit both parties at one of life’s most stressful times and help create peace of mind for a more secure future.