Seven in 10 couples fail to discuss pension savings during a divorce – despite it being one of the largest assets in a settlement, new research shows.
More than half of married couples (56%) would fight for a share of jointly owned property and over a third (36%) wanted to split their combined savings. But less than one in 10 (9%) were concerned with getting a fair share of pension savings despite the average married couple’s pot totalling a significant £132,000.
Scottish Widows, a pension firm that conducted the study, says the trend means typically women are losing out on pension payments in divorce settlements to the tune of £5 billion every year.
Which? explains why pension pots are such valuable assets and how you can split pension savings.
Pension savings: men vs. women
The research found that generally women were less well prepared for retirement than men, with just 52% saving enough for later life compared to 59% of men.
For divorced women, this figure drops to 49%, with nearly a quarter saying they were unable to save anything into a pension – double the rate of divorced men (12%).
Two fifths of divorced women (40%) say their retirement prospects worsened as a result of a split, compared to 19% of men.
According to Scottish Widows, the reasons for these trends include the gender pay gap, maternity leave and career breaks, which impact on women’s lifelong earning potential.
- Find out more: Starting to plan your retirement – everything you need to know about future planning
The forgotten asset
Nearly half of women surveyed (48%) had no idea what happened to their pension pot during a divorce.
But even when pensions were discussed as part of a divorce settlement, women still somehow missed out. The research found that 16% of women lost access to any pension pot when they split with their partner and 10% were left relying completely on the state pension.
Pension splitting: your options
It’s vital for pensions to be considered during divorce so that both sides have enough income in the short-term, as well as later in life.
When it comes to splitting up pensions, there are a range of options including:
- Pension sharing – this allows you to get a share of any one or more of your ex-partner’s pensions. You will need to apply for a ‘pension sharing order’ from court.
- Pension offsetting – enables you to take another asset like the family home instead of a pension. This does not require a court order.
- Pension attachment – lets you to get a share of the pension income, lump sum or both when it starts being paid. This requires a ‘pension attachment order’ from court.
Pensions can be a complicated asset to understand, so you may want to consider getting financial or legal advice to help you get the best outcome.
What’s the best way to split a pension?
The easiest way to split a pension is to use pension offsetting, where one person takes the pension pot in exchange for an equally valuable asset – for example, the house.
This route, although easier in the short-term, could mean you end up lacking vital income later on.
Pension attachment can also raise issues, as you have no control over the investment and will have to wait until your ex decides to draw the pension.
Typically, the fairest option when splitting pension assets is the pension sharing route.
This means a percentage of the savings are transferred into a separate pension in your name, either with your ex partner’s scheme or one of your choosing.
Pension sharing separates the investment from your partner, giving you control over the pot.
But Ministry of Justice figures show that there were just 11,503 ‘pension sharing orders’ in 2016/17 – which represents just 11% of the total number of divorces that year.