Posted on 14.11.17 by Nicola Fraser
Pensions on divorce continue to be overlooked as the gender gap widens.
Pension sharing as a concept and option in a divorce came about following government legislation implemented in 2000. Pension sharing was uncharted territory for family lawyers back then but case law has gradually developed fleshing out the bones of the Welfare Reform and Pensions Act today.
Disclosure of a pension Cash Equivalent Value (CEV) is an obligatory part of obtaining a financial settlement on divorce. In spite of this, it would seem that the availability of pension sharing as an option does not mean that couples actually use it.
A number of fundamental flaws in the current system have been highlighted in the Scottish Widows’ recently released report which focuses on women and retirement in 2017. These mainly surround a lack of awareness and future planning.
The key issues raised in the report were:
- On average, women’s pension pots tends to be less than half the value of men’s;
- Young women, in particular, are choosing not to save for a pension at all (22%);
- Women, on the whole, are struggling to save for retirement when compared to their male counterparts;
- Maternity leave and women taking career breaks to care for children, including working reduced or part-time hours all attribute to the increasing disparity between men’s and women’s pension pots;
- The gender pay gap is playing an increasingly significant role in exacerbating the already disparate pension pots.
The report also blames the current thresholds for auto-enrolment onto an employment pension, which it suggests are too high. A number of women are not meeting the £10,000 marker requiring their employer to pay part of their salary into a pension and contribute to this themselves. Those on a low-income area of course also unlikely to elect to pay into a pension given that their disposable income will already be minimal. This means a number of women are both missing out on an employee benefit as well as failing to save for the future.
Women in these situations will often rely on their spouses or civil partners to maintain them. However, a number of women in this situation are also divorced or in the process of divorcing, which leaves them potentially unprotected.
Alarmingly, statistics collated by Scottish Widows as part of an online survey show that in 71% of cases couples have not even considered the possibility of pension-sharing on divorce, leaving a huge number of divorced women (and also men) who will be entirely reliant on the state pension and sometimes will only receive pension credit (which is a form of social security) on retirement.
While the impact of the above findings on the future of the economy remains uncertain, it is clear that further reliance on the state pension while the government continues to make cuts to public spending and increase the state retirement age, combined with the fact that people (women in particular) are living longer sounds like a recipe for disaster. Any such disaster will be worsened by the fact that 42% of marriages end in divorce (based on figures released by the Office of National Statistics in 2016). This divorce rate is also increasingly high in older couples – meaning less time for either party to rebuild their pensions post-divorce.
While pension providers are piling the pressure on the government to take action, some of the current stats are disconcerting, to say the least:
- 48% of women say that they have “no idea” what happens to pensions in a divorce;
- 27% of women who discussed pensions during a divorce had no pension of their own;
- 16% of women lost access to a pension on divorcing their spouse;
- 10% of women who lost pension access on divorce stated that they would rely on the state pension alone.
Sad to say, some of these women have likely relinquished and lost rights to a pension pot due to what may simply be an oversight.
Cuts to legal aid mean that a huge and increasing number of men and women are uninformed about their rights on divorce, and for want of any easy life, or due to inability to pay legal fees, they give up a retirement fund that in a number of cases may in fact represent the most valuable asset in the marriage.
In my experience, individuals are very rarely aware of the value of their pensions let alone how these can be apportioned between them on divorce. Parties often attempt to avoid having to even request pension figures attributing little or no importance to their values. Recommended reforms to the current scheme include a suggestion that it should become compulsory for couples to include pensions in their divorce proceedings. This presumably would mean making it obligatory for divorcing couples to enter into some kind of financial settlement. While this is what in an ideal world, every lawyer wants to achieve for their client, there are some situations where this becomes impossible.
For example, in cases where the parties are young and have small pension pots or very few assets, it may be disproportionate for them to instruct solicitors to try and obtain a financial settlement if the other party does not comply with providing their financial disclosure. Whereas currently, they could choose not to apply to Court for an Order dealing with finances, the recommendations, if implemented, would mean that they would have to in every case. It would even more burden on the already overstretched Courts system by asking a Judge to intervene and decide matters. Without a complete overhaul of the current law in relation to obtaining a financial order it is difficult to see how in practice a proposal like this could work.
If you are considering divorce, or have divorced but never dealt with finances as part of the process it is important to speak a solicitor for further advice. Contact our Family Law team on 0161 930 5151 or e-mail firstname.lastname@example.org.