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A recent survey has revealed a remarkable level of ignorance about pensions between spouses when they talk about financial arrangements on divorce.
Pension funds are of vital importance in regards to making a fair sharing between couples. These funds are often the second largest of the assets owned by the parties after the matrimonial home and sometimes even more valuable. Against that background, it can be seen that without considering how pensions are to be dealt with, it is almost impossible to ensure that a fair financial solution can be achieved. The party who is most likely to lose out is the wife.
Background
Research undertaken by Scottish Widows, one of the leading insurance companies and pension providers in the country, revealed that 71% of couples embarking on divorce do not discuss pensions during divorce settlements. The reality is that, for a variety of reasons, on average it is the pension funds held by women that are smaller than those of men. This means that the finances of women are disproportionately impacted by the breakdown of marriages.
Summary of the findings of the survey
The survey found that:
- fewer women (52%) than men (59%) are preparing adequately for retirement
- 24% of women have a pension fund smaller than that of their husband
- 48% of women have no idea about the rules which apply to pensions on divorce
- 27% of women approaching divorce had no pension of their own
- 16%of women lost access to a pension find on divorce
- only 22% of women say that they would raise pensions on divorce
- pension sharing orders between the parties are made in only 11% of court orders dealing with financial settlements
- women place more value on pets than on pensions on divorce.
.Recommendations arising from the Report
The authors of the Report make three important recommendations concerning how pensions are dealt with on divorce:
- The minimum earnings level of £10,000 at which an employee is entitled to be enrolled in an employer’s pension scheme should be scrapped so that all employees are eligible.
- The minimum age at which an employee is entitled to be enrolled in an employer pension fund should be reduced from 22 years to 18 years.
- The inclusion of pension arrangements as part of making financial arrangements on divorce should be made compulsory.
The importance of pensions in divorce settlements
Even for those who are financially sophisticated, pensions can be a complicated topic. The absence of an understanding of the significant role that existing pensions arrangements can and should play in achieving a fair financial arrangement is not in the least surprising.
The law gives the courts very wide powers to vary on divorce the way in which pension funds are held by the parties so that fairness can be achieved. This may well involve a varying of the shares held by each party in the capital value of the funds, but also the income derived from the funds is to be distributed between the parties.
The complexity of the potential solution is such that very often, advice is required from a pensions expert to recommend the appropriate solution to the particular circumstances of any case.
The redistribution of the pension values will usually give the party who has the smaller share independent control of their financial future.
Pensions are very often a very significant part of the total value of the financial resources available to the parties. Their importance in the planning for life after the divorce has been completed cannot be overemphasised.
Importance of legal advice
Our advisors are experienced and trained to deal with pensions as part of advising on the settlement of the overall financial arrangements on divorce. It is vital that the future of the available pensions is considered in detail as part of the process: if not dealt with at the time, the opportunity to do so may well be lost. In most cases, this would be detrimental to the spouse with the smaller pension, or, indeed, with no pension at all. Early legal advice on this topic is essential.
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