Many paraplanners will find themselves dealing with clients navigating a divorce, often presenting for deeper complexities when it comes to advice. Samantha Woodham, a specialist family law barrister at 4PB highlights a few golden rules that clients ought to be aware of.
Pensions are crucial, and are the bedrock for financial security in retirement. And yet, in the family law context, for decades they have been sidelined.
Ask any family lawyer about their experiences in the last 10-20 years, and regularly the approach to pensions in ‘needs’ cases (i.e. those where there isn’t enough money to go around, which constitutes the vast majority of separating couples) was to trade-off pension for property. Most commonly, for couples with school age children, the main carer (often the wife) would ‘offset’ her claim to a share of the pension against the family home, enabling the children to remain there during their minority. The problem with that approach is that it often simply valued the pension pot based on its ‘cash equivalent value’, rather than valuing the benefits which will be paid out in retirement. The result? Divorced women were left in a significantly worse position, even accounting for the increased property share and the ability to downsize, than their male counterparts who had retained the pension.
All this was supposed to change with the advent of the Pensions Advisory Group report in 2019, a multi-disciplinary group of judges, lawyers and pensions experts who specialise in the field of financial remedies and pensions on divorce, who sought to address the shortfalls in understanding which existed amongst advisors, in particular when it came to valuation and offsetting. The group published a second report in 2024.
However, the pensions gap continued. In 2021 the University of Manchester published research showing that in the UK, men have far more pension wealth than women, rising with age, and that for roughly half of couples, 90 % of pension is held by just one partner.
And the latest research, from the Pension Policy Institute (PPI) and now:pensions, highlights the same issue. Some of its key findings are:
- Divorced women typically have £53,160 less in pension savings than divorced men.
- Pensions are the second-largest asset in a marriage after property, yet seven in ten (71%) divorce settlements don’t consider pensions assets.
- Divorced women hold just 39% of the pension wealth of divorced men. The median pension wealth for divorced men stands at £85,800 compared to £32,640 for women.
- Among married individuals, the women’s pension wealth gap remains significant, with men holding 61% more at £111,540 versus £43,656 for women.
- Assuming retirement age is 66 years old, and with men expected to live to 79 and women to 83, pension wealth must last for 13 and 17 years, respectively. However, divorced women’s annual pension income (£13, 893) is only slightly over the minimum retirement living standard (£13,400). In contrast, a male divorcee’s pension income is over £18,573 per annum.
- In terms of workplace pension disparities, 30% of divorced women work part-time, which is three times the rate of divorced men (10%), and earn 37% less on average (£31,279 vs £45,540). This lower earning capacity means that divorced women are twice as likely to be excluded from automatic pension enrolment, compared to men (6% vs 3%).
So what is the answer? Well, from a legal perspective, there are some golden rules every couple with pensions should know:
Pensions should not be lumped in with the rest of a client’s capital assets. Clients are much better off viewing them as a retirement income stream.
The value on a client’s pension statement (often referred to as the ‘cash equivalent value’) may not represent the true value of the pension benefits. This is particularly the case for defined benefit (or final salary) pension schemes, or public sector pensions.
If a client has pensions worth £100,000 or more, they are very likely to require a pensions on divorce expert to value them, and help them understand how they might want to share them. This is not a lawyer’s job, although a client may want a lawyer to help them instruct a pensions on divorce expert (usually an actuary or financial advisor with this specific expertise).
Pensions do not need to be a difficult issue to navigate on divorce. The law is now fairly settled and most family lawyers will be able to give a clear view as to what is likely to be fair in a client’s particular situation (taking account of factors such as how much of the pension was accrued during the marriage, and a client’s overall financial picture).
Clients should also consider sharing a lawyer to get this advice, as this can often be the quickest and most cost-efficient outcome. Remember, it is in the interests of both for retirement needs to be considered at this stage, so neither are put in a position later where they might be seeking to re-open the deal, or left in a predicament of real need.
Samantha Woodham is a specialist family law barrister at 4PB, and the co-founder of The Divorce Surgery, the first law firm in the UK which enabled separating couples to share a lawyer on divorce for a fixed fee.
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