Over the weekend, the Guardian published an article looking at the discrepancy in pension values between men and women, and the imbalance that can often come up in divorce.
The article is based on research from the Pensions Policy Institute, the Manchester Institute for Collaborative Research on Ageing and the Office of National Statistics. It shows a stark gap between the average values of men and women and highlights how much worse the situation can get when a couple go through a divorce.
How Are Pensions Dealt With in Divorce?
There are a few ways you can deal with your pensions in divorce, including:
- Offsetting – Where the person without the pension fund, or a lower value fund, receives more of other assets to ‘offset’ the differences in values
- Attachment – Where payments are made each month, like a maintenance payment. These are only used rarely
- Sharing – Where one person transfers a specified portion of their larger fund into a separate, independent account for the other person
Our Divorce Law Solicitors can help you deal with your pensions in divorce to make sure you feel financially secure in your future.
What the Research Shows
Although pensions can often be one of, if not the biggest, asset in divorce, the figures detailed in the report suggest that Pension Sharing Orders feature in only 12% of divorces.
The report suggests that this is in part due to women preferring the offsetting route, which should be treated with caution, to keep assets such as the family home. But there is little doubt that it’s also down to a lack of understanding of the available options and how they work.
Most people don’t actually get any specialist advice when they divorce, choosing a short term decision about costs over researching things fully. Yet pensions are one area in particular where it can be extremely important to understand all your options and what they mean for you, to make sure a settlement is fair and caters for everyone’s needs well into the future. And although a Court shouldn’t really approve any Order that doesn’t do this, it isn’t always picked up, especially if you don’t have an experienced Family Solicitor assisting you.
Although offsetting can be appropriate in some cases, it leads to a lack of financial stability later in life in many other cases.
Understanding what is fair in Divorce
It is important that anyone in the process of negotiating a divorce settlement understands that not all assets are equal, and they have different values, both financially and practically.
A financial settlement needs to ensure both of you can cater for your needs and those of any children, not just in the short term but also well into the future.
Considering your pension entitlement in detail will usually form a crucial part of that process.
How to Work Out Your Pensions in Divorce?
If you’re going through divorce, it is important to understand the value of all the pension funds both of you have, including your state pension entitlements.
With the input of a Pension on Divorce Expert report, Lawyers usually look at a specific figure called a CEV (Cash Equivalent Value) as part of the process. We will consider what lump sum(s) can be obtained, and what income each fund will produce. Again, it’s important to remember that not all funds are equal and the basic value only shows part of the picture of the benefits your pensions will actually bring in retirement.
A full understanding usually requires expert input.
The additional fees of getting help from a specialist might put you off, but most Family Lawyers will tell you it’s money extremely well spent, especially when a pension fund could be worth hundreds of thousands of pounds. The short-term benefit of avoiding costs will usually be far outweighed by the benefit of a settlement that fully considers all of your assets and protects them in the future.
Pensions that are already in payment need to be treated in a slightly different way, but remain a crucial part of the overall settlement.
Pension value information is something that anyone going through a divorce is entitled to. Some people feel they are being unreasonable by asking for the information, but that is not the case at all and it is an essential part of the jigsaw of financial disclosure that forms the basis for sensible and meaningful discussions about how you will divide your assets.
You can read the Guardian’s article here and you may want to read the additional content below on pensions in divorce.
More Content on Pensions and Divorce
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