Women, relationship breakdown and the risk of pension poverty

The Office of National Statistics reported in 2022 that 42% of the wealth held by households in Great Britain is held in pensions.

However, every year, reports are produced by pension providers illustrating a stark fact: women often underestimate the value of pensions, especially on relationship breakdown.

The Gender Pension Gap

In 2021, Professor Debora Price and Dr Jennifer Buckley published a paper which highlighted the gender pension gap. They reported that:

1. Men have substantially more private pension wealth than women, with disparities increasing across age groups. For those aged 65-69, median pension wealth for men was just over £212,000 compared to just £35,000 for women.
2. Married men have the most pension wealth. For the age group 45-54, married men had median pension wealth of about £86,000 compared with £40,000 for married women, at 55-64, the disparity was £185,000 compared with £55,800.
3. Divorced men who were not cohabiting in the age group 45–54 had median pension wealth of £42,000 compared to similar women’s £16,000, and in the age group 55–64 the disparity was £100,000 compared with £19,000 for similar divorced women.

Pensions on relationship breakdown for unmarried couples

What happens if a cohabiting couple separate? Their legal remedies against the other party are extremely restrictive and based solely on the law of property and trusts, rather than any element of fairness or discretion, as would apply on a divorce. Unless the couple start a family together, when a different legal regime applies to cater for the financial needs of any children (albeit the regime is not as generous as that on divorce), there is no obligation for one party to support the other with maintenance payments, and there may be limited, even no, recourse to a home, investments held by the other or businesses. 

In terms of pension wealth generated during the relationship, it remains with the party in whose name the pension fund is held. There are no legal remedies available to share those pensions.

Therefore, having independent pension funds is critical.

Pensions on divorce

Both parties are entitled a fair and reasonable financial settlement based on the resources available. In many cases a fair division of all the assets, including pensions, can be achieved without complications provided couples have the necessary legal information to be aware of all the options available to them. Taking expert advice is key.

In financial remedy proceedings, the court will look at the extent of the parties’ financial assets and divide them in accordance with what is considered fair. Pensions are part of this assessment and the starting principle is that any contributions made to pension funds during the marriage should be divided equally between the parties.

This can be done with a pension sharing order, which takes a percentage from the pension fund of the wealthier party and transfers it into a pension fund belonging to the less wealthy party. The two pensions then stand alone, and the parties are free to deal with them as they see fit, completely independent of the other party.

Many women underestimate the value of securing a share of pension assets in a divorce settlement:

• Almost half of marriages unfortunately now end in divorce
• In 2021, there were 113,505 divorces granted in England and Wales
• Despite this, information obtained from a Freedom of Information request shows that the number of applications for pension sharing orders, which instruct pension providers to divide the value of a pension fund between parties, fell by 35 percent since 2017, from 36,202 to 23,622 in 2021

That means that only 1 in 5 divorcing couples considered steps to share pensions on divorce.

The impact of failing to address pensions on divorce

An obvious priority for many, especially those who may be the main carer of children, will be to secure a home. It is tempting to think of immediate gains, without focusing on future, and long term, financial well-being during later years.

Previous research carried out by Scottish Widows revealed that many couples were more concerned about losing a pet than seeking a fair share of pension.

Without information about the possible orders that can be made in a divorce settlement, many women wrongly believe that they cannot share in pension assets because they are only realisable later in life. 

The tragic impact of this lack of information is that a significant number of divorced women (66% according to a recent Phoenix Life report) have to rely completely on state pension for income in retirement.

This can only be seen as a ticking time bomb for that individual and for governments of the future.

What steps should be taken?

Since the advent of no-fault divorce in 2022, the process for divorce is much more straightforward. However, as a result, some couples fail to appreciate that they still need to resolve financial issues and so dismiss the importance of taking expert legal help to assess all potential options. This may include a pension sharing order.

Even if a couple have very little, or even nothing, to resolve from a financial perspective, they are always best served by obtaining a consent order from the court to reflect the financial agreement they have reached. On marriage and divorce, the law provides both parties with a wide range of obligations and financial responsibilities towards their spouse, or former spouse. Unless those obligations are dismissed, and so brought to an end, by a court order, they are still potentially available for the other party to make a claim against in the future. If one party subsequently inherits a significant sum or wins the lottery for example, or if circumstances change such that one party needs to fall back on the support of the other, they could be at risk of a claim, even if a divorce was finalised several years ago.

Summary

In summary, it is important to obtain early expert advice to assess all options for a settlement, including pensions.

Although the issues raised in this article are not exclusively faced by women, pension poverty in later life significantly impacts a disproportionate number of women and needs to be addressed.