Warning for thousands of divorcing women who are missing out on slice of £4billion pot – how to avoid it
THOUSANDS of women are missing out on up to £4billion a year by ignoring their ex’s pension, new figures provided to The Sun show.
A change to the law in 2000 meant pensions would start being included as part of a divorce settlement, but last year only around 30% of splitting couples opted to do so.
Women could be missing out on between £1.8billion and £4billion a year, according to estimates by the Institute and Faculty of Actuaries (IFoA) and Scottish Widows.
Divorce settlements can be complex and some large assets such as property, and other investments and savings are also split.
Lawyers say women will often not want to include the pension because they don’t understand it, or mistakenly believe it will financially tie them to their ex.
Bhavna Radia, a former family solicitor and founder of the Divorce Lounge, said the women she advised were often scared to ask their ex about their pension.
“Women are worried it will make them look greedy,” she said.
“Also a lot of women aren’t aware that they can have a share of their partner’s pension but have a clean break, so they don’t need to be tied to their ex.”
A family law solicitor, who didn’t want to be named, added: “I have sat down with clients and pleaded with them to consider looking at their spouse’s pension.
“I managed to persuade one woman who was going to settle for the family home – which was worth around £200,000, to consider a pensions splitting order.
“So we managed to go for a pension splitting order with her husband, a mid level civil servant, who had saved over £1million in his pension during their 20 year plus marriage.”
Vix Munro, a financial coach and founder of Retire Rich, added: “Women get attached to the family home when they would be better selling it, or taking a share of their ex’s pension.”
There were around 120,000 divorces in the UK in 2022 – including England, Wales, Northern Ireland and Scotland – a figure the IFoA said was increasing among those aged 65 and above.
The IFoA estimated 60% of divorces did not include the pension, meaning around £1.8bn a year was not being split.
A study by the University of Bristol and the Nuffield Foundation also found more than a third of divorcees did not know how much their pension savings, or their partner’s pension savings were worth.
Scottish Widows also provided an estimate for The Sun which came in at around £4 billion.
The pension provider estimated women who divorced later in their working life could miss out by £77,000 in their pension pot at retirement.
Samantha Gould, head of campaigns, NOW: Pensions which also worked alongside the IFoA said: “Pensions are often the second most valuable asset after a home, but we see that property is often the greater focus during the divorce process which leaves divorcee’s asset-rich but cash-poor.”
How to split a pension
CLARE Moffat, pensions expert from Royal London, explains how you can split your pension:
Find out how much your pension is worth – Clare said: “The solicitor helping you with your divorce will help you get details of your ex partner’s pension.”
This also means paying for a pensions splitting report which will give you an estimate of how much the pension will be worth by the time you both retire.
Choose how to take your pension – Moffat said you can choose to split, offset or earmark a pension.
If you split the pension the money in the pension will be transferred into a separate pension account, and you’ll normally have to pay a fee.
Clare said: “Earmarking means you get a share of your ex’s pension but it stays in the same pension ‘account’ – this means you can’t take it until your ex retires.”
Offsetting means you don’t take the pension and instead split another asset or keep your own pension.
“This tends to happen when the couple don’t have children and have equal shares in an asset or have the same value in their pensions,” she added.
Take advice – If your ex has a final salary scheme it could be worth more than the family home.
Moffat said financial advice was essential.
“Some pension schemes will pay for a financial adviser, particularly if it is a final salary scheme,” Clare said.
If not you can find a specialist financial adviser at unbiased.co.uk.
Moffat also urged divorcing couples to change any agreements which entitle their ex to a share of their cash, this might include an expression of wish or death in service agreements.
Royal London has published an online guide to pension sharing here.
You can find a solicitor specialising in divorce and pensions here.
Find free guides on divorce and pensions here.
If you are over 50 you can book a free appointment with an adviser via Government-backed Pensions Wise here.
“Making sure that pension funds are considered by default in divorce settlements is a vital step to addressing pension inequality.
“Women are particularly disadvantaged when going through a divorce if pensions are forgotten, because their average savings are generally much smaller than men’s.”
Lucy Chahil, a financial planner, said the cost of the reports compiled by actuaries before the pension could be split often put women off.
“But in the long run having a properly-funded pension will save them even more,” she said.
“We really insist that women consider the long-term cost of not taking the pension into account when they are looking at family assets.”
Chahil urged women who were divorcing to use the websites Advice Now and Resolution.
“There are loads of resources for anyone who is looking at their finances and considering or about to divorce.”
Karen Doveston, a solicitor and chair of the Law Society’s family law committee, said: “If your ex has been employed in a civil service type job then they may have a government backed or minimum guaranteed pension plan, such as a final salary scheme.
“These are worth a lot more.
“Also consider where you live or lived, for example Southend in the 1970s and 1980s was a big banking town so their ex may have amassed a large pension during those years.”
“It’s regional too, if you work near Salisbury, then it may be military pensions or in Dagenham the old Ford pensions scheme, and so on.”
What is pension splitting?
There are different ways of splitting a pension, these include:
Offsetting
With offsetting you exchange the value of a pension in exchange for other assets or cash, but the pension value is assessed and taken into account.
Attachment or earmarking
You gain the right to part of an ex-partners pension, but you need to wait until they retire and if you remarry or your ex-partner dies, you may lose your right to the pension.
Pension sharing
This is when pension benefits are split at the time of the divorce.
The money can remain with the same company or transferred to a new pension.
When you split the pension, you may also need to pay some charges if you transfer money out of the pension into another.
The value of your pension is called the “cash equivalent transfer value” or the amount you would get if you took out your pension and moved it to another pension scheme.
What about the state pension?
If you have an additional state pension, then a court can issue a pension sharing order which means this may be split as part of any financial settlement but you will need to have been born before April 6, 1951, if you are a man, or 1953 if you are a woman.
If you are going through a divorce free advice and a helpline are available via the Government websites Moneyhelper and the Money and Pensions Service (MAPS).
Do you have a money problem that needs sorting? Get in touch by emailing money-sm@news.co.uk.
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