Scottish Widows research has found that divorced women are missing out on £5bn in pension payments each year, as experts highlight the need for women to take professional advice on pensions during the divorce process.
Office for National Statistics data indicates that 42 per cent of marriages end in divorce.
Research conducted as part of the Scottish Widows' annual Women and Retirement Report found that 24 per cent of divorced women are not currently saving into a pension, while 71 per cent of couples do not discuss pension arrangements during divorce proceedings.
Divorce amplifies that lack of preparation for retirement
Catherine Stewart, Scottish Widows
Invest in financial advice
Engaging professional advice remains key to reducing the number of women with pensions disproportionately affected by divorce.
Catherine Stewart, retirement expert at Scottish Widows, said women are generally less well-prepared for retirement. She attributed this to the gender pay gap, maternity leave and career breaks.
“Divorce amplifies that lack of preparation for retirement,” she said. “I think a lot of it is down to some confusion around pensions. About half of them have no idea what happens to pensions when a couple gets divorced, and that might explain why that’s ignored in discussions when they’re coming to settlement,” she added.
The Scottish Widows research found that 22 per cent of women believe that each partner retains their own pension, while 15 per cent presume that they are split equally, regardless of the circumstances.
Stewart added that the general lack of understanding of pension arrangements is accompanied by difficulty in access to advisers, and a tension between current and future needs.
She recommended that women “invest some time and money in getting advice, because it is quite a complex area and quite a lot of them particularly are looking at finances at that point in time and trying to minimise the expenditure”.
“By spending a little bit on advice to understand what’s the best for them, it could actually be a good investment of their money”.
Examine your options
Investing in advice may open up a range of avenues for female savers to explore when establishing the pension arrangements during divorce proceedings.
Sarah Anticoni, partner at law firm Charles Russell Speechlys, identified three options available to divorcing couples:
• Divorcees may agree to ‘offsetting’, where women may walk away from the pension in return for a greater proportion of other assets, such as cash or property.
• They may use ‘earmarking’, which orders the pension provider to pay a set amount to the divorced woman. This option is rarely engaged, according to Anticoni.
• The final, and most commonly adopted approach, is to engage in pension sharing, where the pension is split. The pension is not necessarily divided 50-50 in this scenario.
“It doesn’t surprise me… that lots of women are unaware of those options. [The] first problem is that many have not been paying into their own pensions,” she said.
Anticoni noted that many women may have had career breaks to raise children, meaning that they might not have a good track record of paying into a pension, or have relied on a higher-earning partner.
"Many women don’t know what national insurance contributions they’ve made. When you start talking about stakeholders and Sipps, they just give you a look of horror," she added.
Women must take back control
The gender pay gap is discussed as a contributing factor towards disparity in pension arrangements that can harm divorcing females. But women can still take measures to limit the impact of their divorce on their pension.
Kate Smith, head of pensions at Aegon, echoed sentiment towards engaging professional advice on pensions during the divorce process.
“If they have a lawyer involved, this is bread and butter stuff… [they] should get the value of that pension right," she said, adding that "it’s just surprising that more women are not doing that".
In addition to contracting legal advice, women must do more to take on responsibility for their pension arrangements, according to Smith.
Addressing career flexibility could help tackle gender pensions gap
The gender pay gap is a multi-faceted problem that needs a multi-pronged approach, experts say — from financial education to adapting the pensions system to assist flexible working.
“They should do their homework, do their research. There is a lot on the internet talking about understanding the value of all your assets as a combined couple,” she said.
“The women have to go and do it. The men will be doing something similar as well, and in a relationship, it’s still normally the case that the man has more assets than the female,” she added.
