Pension Inequality on Divorce
At an extremely thought-provoking seminar at the recent Resolution Family Practice Conference, a number of family law practitioners had the pleasure of listening to Professor Debora Price of Manchester University talk about how complex and highly gendered the pension system is in the UK; possibly one of the worst pension systems in the world. A striking feature of her presentation was the stark pension gap between men and women which means many women are thrown into poverty on retirement, especially if divorced. This no doubt helps to explain why significant numbers of divorced women are reliant on state benefits in retirement and the situation is made worse by the fact the number of divorcees entering into retirement is growing. As a family lawyer, this poses an important challenge, namely, how can we address some of these inequalities, in practice, in order to help optimise client outcomes on retirement?
Pension sharing orders which have been in existence for just over 20 years, since their introduction on 1st December 2000, were designed to help alleviate the problem of spouses being left without a pension. The aim was, as the name suggests, that pensions could be split or shared to create fairness between spouses and civil partners on divorce or dissolution. This was done by allowing the family court to direct that a portion of one spouse’s pension(s) be split and shared with another spouse. Yet research by Price and her team highlights that pension inequality is rife both in general terms and subsequent to divorce. They found that married men have the most pension, with those aged 45-54 having a median pension wealth of circa £86,000 compared to £40,000 for women. The chasm grows by age 65-69 where the median wealth for married men is £212,000 compared to just £35,000 for married women. This means that the average married woman is retiring with just over 16% of the pension wealth that the average man does. That’s bad enough but the situation for divorced non-cohabiting women is even worse with a pension pot of £19,000 in the 55-64 age group compared to a pension pot of £100,000 for men in an equivalent position. Women in this situation do not have a safety net to financially assist them in retirement. One possible solution Price suggests is for women to re-partner as soon as possible, but of course that is easier said than done. As family law practitioners, our role is to analyse the issues and to signpost the client on the importance of understanding all the assets, including the pensions, and dividing them fairly based on the circumstances of each individual case. Since pensions can be complex, we often require the assistance of a pension on divorce expert (PODE) to help value the pensions involved and provide advice on splitting the assets. Pensions accrued before marriage or after separation can be shared as well and so the role of the expert will be to consider all the pension assets in their totality. The problem, however, is that many clients do not even consult a lawyer, let alone obtain a pension expert’s report, which means women can lose out in ways that cannot be appreciated until years later.
The impact on women with regards to pension sharing is hard to ignore and it seems that many clients have overlooked what is often the second most valuable asset after the property. In some cases, often out of London and the South East, the pension is in fact the most valuable asset but since so little attention is given to it, the information as to its value or long-term relevance is overlooked. It is known by many family practitioners that women often prefer off-setting to pension splitting, which is when a trade-off is made to keep more of the home or other capital in exchange for letting the husband keep more of the pension, but this can be very damaging especially if the clients do not properly investigate or evaluate the true value of the pension(s) involved. Some women think they have no entitlement to the pension in any event because it was started before marriage and/or in the sole name of the husband but that is untrue and there needs to be better awareness of this issue.
To highlight and ameliorate the situation, The Pension Advisory Group published a guide known as the PAG report which helps to provide a more consistent and better informed approach to the treatment of pensions on divorce. This is essential reading for family lawyers. For clients, they might want to reflect on how pension wealth is very unequally distributed and that this continues after a relationship ends. For example, divorced women who are not cohabiting and in their late 60’s, have less than 30% of the pension of men in the same circumstances. This is sobering and a long term view has to be taken when it comes to dealing with pensions on divorce.
Farhana Shahzady is a Director, Solicitor, Collaborative Lawyer and Mediator in our London office. Each person’s situation is unique, to discuss your circumstances with one of our specialist family solicitors please contact us.