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Seven in 10 divorcing couples don't share pensions

Overlooking retirement savings could leave women on a financial cliff edge

The majority of divorcing couples aren't including pension in settlements, with fears that new no-fault divorce laws could make the problem worse

A financial divorce settlement is a legally-binding agreement governing how you'll divide money and assets after a split.

Of the 948 Which? members we surveyed in May who had divorced since the law changed, 71% didn’t include pensions in their financial settlement, despite UK courts allowing pension sharing orders since 2000.

Ideally a divorce settlement should fairly divide assets and enable divorcees to move on with their lives. But leaving pensions out can lead to unequal settlements as married women, particular older women, tend to have smaller pensions. 

Here, we explain why pensions matter - whether you're divorced, married and in a civil partnership - and how changes to divorce laws could impact you.

It’s not just property you should split 

We usually associate divorce disputes with children and the family home, not our retirement savings.

Many ex-spouses – 22% of those who didn’t share pension assets in our survey – don’t want to share their pension.

A recent Freedom of Information request by law firm Nockolds found the number of applications for pension sharing orders had fallen 35% since 2017 - from 36,202 to 23,622 in 2021.  

Instead, a lot of couples choose to settle outside of court by ‘offsetting’ the value of the pension against the value of another asset, such as the matrimonial home. 

But this can be a big mistake, as Jim Richards, senior associate at Winckworth Sherwood, a law firm, warns: ‘Offsetting is something of a dark art. On paper, it may look like the property’s worth more. But certain pensions – such as defined benefit schemes – can be extremely valuable.’

While offsetting can be agreed out of court, a pension scheme provider can only divide up the pensions by court order. 

In England, Wales and Northern Ireland pension sharing will apply to the entirety of an individual’s pension pots.  In Scotland, only the value of the pensions you have built up during your marriage or civil partnership is taken into account. 

Many people may be deterred from a pension sharing order as they believe this will financially tie them to their former spouse after the divorce is concluded – however this is usually not the case, as a percentage of the pension pot will be transferred at the point of divorce. 

Less frequently, an attachment order may be applied where the share is paid as a kind of maintenance, which ends in the event of the former spouse’s death. 

‘That one free hour saved me’ 

Joan Bunn, 65, was shocked when her husband of 34 years told her he wanted a divorce. ‘It’s like someone’s just pulled a pin out of a grenade and thrown it at you,’ she told Which?. 

While Joan worked part-time in childcare for most of the marriage, her husband led a decorated career in the armed forces. That meant he was enrolled in what the government calls one of the most generous pension schemes in the UK, which Joan’s retirement depended on. 

Joan remembers her shock upon discovering at a mediation session that her husband had vast amounts in savings she wasn’t aware of. At the time she earned only about £1,000 a month. ‘I just broke down crying,’ she said.

After an eight-year legal battle, eventually Joan won a share of her husband’s pension. However, she admits she wouldn’t have known her pension rights if not for the advice she received. 

‘It was my ex-boss who told me I could speak to a solicitor for free,’ she said. ‘That one free hour saved me.’

A number of the women we spoke to said they were deterred from getting a solicitor because of the cost. 

Heather Thomassen (pictured below) told Which?: ‘If I had employed a solicitor, I might perhaps have been advised regarding pension rights. But like many other women with a family to support, I couldn’t afford it.’

Heather Thomassen
Heather Thomassen

Samantha Lee (pictured below) didn’t get legal representation and had no idea she needed to protect herself. 

She agreed with her ex-husband, who did take legal advice, and who was based in the US, that he would pay for her belongings to be sent back to the UK – nothing else.

Although taking a divorce to court could cost £30,000 or more per person, it needn’t get nearly this expensive. 

Samantha Lee
Samantha Lee

Some solicitors will offer a free or fixed-fee appointment that could help you better understand your legal and financial position, and you can also take out a loan to pay legal fees. 

Mediation could be a far cheaper alternative: it usually costs between £100 and £200 a session, according to Money Helper, a government guidance service.

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What are no-fault divorces?

Since April, one person can apply for divorce by themselves and couples no longer need a reason to divorce.

The court then notifies their partner by email within the 20-week waiting period before the ‘conditional order’ – but potentially as late as 18 weeks in. 

Although there’s then a further six weeks before the divorce can be finalised, the party being divorced could be left with eight weeks to seek legal advice.

Some experts believe there must be stronger nudges towards legal advice during the divorce application to ensure that people understand their rights as soon as possible and don’t stay silent because of the emphasis on amicable separations.

Former pensions minister, Sir Steve Webb, partner at consultants LCP said: '‘While the new online no-fault divorce system has many advantages, it’s vital that it doesn’t result in a focus on speed at the expense of fairness.’

Why are women’s pensions smaller?

Women, particularly those who are older, are likely to have smaller pensions and to lose out if pensions aren’t shared. 

While the average 64 to 69-year-old married man has £260,000 in private pension savings, an average woman of the same age has just £28,000, according to research by the University of Manchester and the Pensions Policy Institute. 

However, it's not just older married women who have smaller pension savings: the gap is apparent in our 30s.

There are a lot of factors behind women generally having smaller pension pots than men, from tending to have lower incomes to being more likely to take time out of work.

A recent report into the gender pensions gap by Now Pensions found 3 million women are locked out of a workplace pension as they do not meet the minimum earnings threshold for auto-enrolment.

Women also typically spend 10 years away from the workforce to start families, care for children and other relatives. 

Back in 2019 Which? put forward a number of proposals to close the gender pensions gap, including the government making a lump-sum pension contribution for a mother on the birth of her first child.

How to futureproof your finances

You may think there’s no need to plan for divorce. But knowing the impact of it can provide valuable financial lessons, regardless of your relationship status. Many of the same issues also arise if you’re widowed.

Pensions

Build up your pension. If you can afford it, try to keep making contributions during a career break – even small payments can make a big difference to your final pot. 

Also think about increasing your contributions when you return to work and see if your employer will up its contribution too. 

More evenly shared career breaks can help couples reduce the disparity in their pension pot sizes. 

Another option is for one partner to contribute to the other’s pension if that person finds themselves out of work.

Property and tax

Make sure you’re both named on the property deeds. If you’re not, register your interest in the property on the government’s online notice of home rights. This prevents your partner from selling the property before the divorce is finalised. 

After a split, a mortgage broker can help you understand what to do with any joint mortgage debts, and how to get a new property. But beware tax traps if you’re moving out.

If you have moved out of the matrimonial home, and sell it for a profit, you could end up having to pay capital gains tax, although Private Residence Relief is available.

Joint accounts

Keeping some bank and savings accounts separate and in your own name will help you retain your financial independence and could be better for your credit score in the long term.

Don’t assume that once the divorce is finalised, you’re no longer responsible for your ex-partner’s debt.

To avoid your partner withdrawing money without you knowing, or running up an overdraft, ask your bank to change the account to ‘both to sign’. Then talk to your partner about closing the account.

Insurance policies

You might have to remove your ex-partner from policies such as life, car, home or travel cover. If you have a joint policy, you may decide to cancel it or transfer it into one person’s name. 

After a split, see if your insurer will allow you to transfer a portion of no-claims discount from the previous policy onto your new policy.

Credit score

Maintain a high credit score by making sure you’ve got a solid history of repayments on credit accounts that are in your own name.

This means it may be better to hold your own credit card, rather then a secondary credit card on your partner's accounts.

After a split, ask the credit reference agency to remove your partner from your credit report (where they may be listed as a ‘financial associate’), otherwise, their financial behaviour could affect your ability to borrow money.