Sep 21

Pensions and Divorce

Written by Ellie Foster
Legal Director

DDI: 01423 726621
M: 07548 213132
E: ellie.foster@raworths.co.uk

A new report has again highlighted the gender inequality in pension wealth and its potential impact on pension outcomes on divorce.

The Manchester Institute for Collaborative Research on Ageing (MICRA), in conjunction with the Pensions Policy Institute, published their report on 15 September 2021.  This presented their analysis of the private and occupational pension wealth accumulated by almost 29,000 individuals over the age of 30, including 10,408 couples.  Their findings highlight a worrying imbalance between men and women, which is ripe for adjustment on divorce.

In broad terms, the report highlights:

• 28% of those surveyed had no pension wealth at all.
• Men have significantly more pension wealth than women generally. This disparity increases with age.  For example, the average pension wealth for men and women in the 45-54 age bracket is £60,210 and £30,000 respectively. By the age range of 65-69 this imbalance has increased significantly to £212,702 as against £35,054.
• Married men have the most pension wealth with the gender gap again widening with age, such that by age 65-69, married men (in a first marriage) have pension wealth of £260,860 and married women £28,111.
• The gender disparity is clearly evident irrespective of status; whilst those in second marriages have lower average pension wealth, men still have more than women. Further, the disparity persists on divorce: divorced women have less pension wealth than divorced men.
• Although about 90% of couples have pension wealth between them, in over 50% of those couples one party has more than 90% of their combined pension wealth. In just 15% of couples the parties have broadly equivalent pension wealth.
• Particularly for high earning households, average pension wealth exceeds property value.

Based on this analysis, the report concludes that there is considerable scope for pension sharing on a divorce to adjust the pension wealth more fairly between the parties and this could impact positively on women in later life.

Pension sharing became one of the orders in the court’s armoury in 2000.  This change in the law was designed in part to help improve pension income, and alleviate financial difficulties, for women later in life.  However, Family Court statistics suggest that, 20 years on from that sea change, pension sharing orders on divorce still appear to be in the minority. The data from the MICRA report as to the pension wealth gender imbalance after divorce seems to support this.

Pensions can be complicated and their value is often overlooked on divorce.  Sometimes one party can be keen to retain the family home, thus taking a short term financial view and not addressing fully their relative lack of pension and their needs in retirement.  Sometimes one party has an emotional attachment to their pension, placing pressure on the other to leave it alone.  Often parties, despite being aware of a disparity in their pension wealth, are reluctant to incur the cost and delay of obtaining expert advice to work out how the pensions can be adjusted fairly.  As MICRA highlighted, these situations can result in a trade off over assets, to the detriment of one party, usually the woman.

In July 2019, the Pension Advisory Group (PAG) published its report: A Guide to the Treatment of Pensions on Divorce.  PAG was tasked with providing in depth guidance about how to approach pensions on divorce with the aim of promoting understanding (including amongst judges) and encouraging fairer settlements.   This was followed with a lay-person version, endorsed by PAG:  “A survival guide to pensions on divorce” which was published in January 2021 by Advicenow. Subsequent reported cases have discussed and relied on the guidance from PAG in situations driven by the parties’ needs.

It is to be hoped that with pensions on divorce retaining a higher than usual profile in recent years, this will result in a wider understanding as to the value of pensions and the need for advice on how they can be adjusted fairly meaning that both parties can make an informed decision on how they are treated on divorce.

Published on 27 September 2021