Why do divorced women face pensions inequality?

 

According to an article published in Which magazine, women are losing out substantially if their partner’s larger pension pot is not included in their divorce financial settlement calculation.

Since 1 December 2000, a married couple have been entitled to request pension sharing orders upon divorce. The idea is that traditionally men would have had the larger salary and pension pot (owing to women having to take time off to have children and losing out on promotion chances and an accumulation of pension contributions to build a bigger nest egg before retirement).

After Dec 2000 either party can seek a pension sharing order to divide the pension assets equally between them.   

Introduced by the Welfare Reform and Pensions Act 1999, pension-sharing orders apply to occupational pension schemes and personal pension schemes. The member's pension rights are valued as a cash equivalent, and part of their value is used for the benefit of the member's ex-spouse.

When implemented, the ex-spouse benefits from a pension credit, and the member's rights are reduced by a pension debit. Pension-sharing came into effect on 1 December 2000. Since December 2005, the provisions also apply to a civil partner on the dissolution of a civil partnership.

The Which magazine article highlighted that based on November 2021 research, there are only 15% of divorcing couples who include pensions in their financial settlement. This means the pension fund may be being overlooked or disregarded in favour of more of another asset. This can often lead to unstable pension provisions for divorced women in later life.

Read the full Which article here 

This builds on the research conducted and published in September 2021 by Manchester University:

Read ‘Pension Inequality is a Major Issue’ article
published by Manchester University here.

The Manchester University research team analysed the pension wealth of almost 30,000 people over the age of 30. They found that married men have the most, with those aged 45-54 having a median pension wealth of about £86,000 (compared with £40,000 for women) and those aged 55-64 having £185,000 (compared with £55,800 for women). For those aged 65-69, the gap is even wider - in this age bracket median pension wealth for married men is just over £260,000, compared to just £28,000 for married women.

The data showed that while around 90% of couples have some pension wealth between them, in about half of couples with pensions, one partner has more than 90% of the pension wealth. Fewer than 15% of couples have pensions that are approximately equal.

“It is clear that considering pensions on divorce could have considerable impact on people’s finances in later life - especially women” said Dr Jennifer Buckley from the Cathie Marsh Institute for Social Research at The University of Manchester. “Information for divorcing couples is vital. We also need to address important questions about the long-term financial implications of divorce on pensions, and why we see such an imbalance of pension wealth within couples.”

Sarah Townsend, Solicitor, Family at Lawson West Solicitors adds:

 

“Including the pension pots in financial negotiations for divorcing couples can be beneficial to the party who has the lower or no pension provision. This will ensure fairness where the parties have not been in a position to contribute equally into their own pension funds during the marriage.

Obviously every case needs to be looked at on its own circumstances as in some cases the marriage may be short and pension contributions were made prior to the marriage. 

Understanding options with pension sharing and offsetting pensions for other assets can be complicated and in cases of high value pensions is likely to require the input of experts. I would encourage anyone who is unsure as to their entitlement to pension sharing or is unaware of the pension assets to seek legal and financial advice.

It is also important for couples who are thinking about marriage, especially if this may be later on in life, where they have already accumulated a substantial pension fund, to consider putting in place and pre-nuptial agreement to set out very clearly what will happen on divorce to any pension funds the parties had prior to marriage.”

 

If you are facing divorce and want to know if your partner’s pension pot can be drawn into the negotiation, without harming your own financial interests, then please contact the Family team here. We can make an assessment of your financial structures and advise accordingly.

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