Divorce rates for the over 60s are increasing, and for this age-bracket in particular it’s likely that pensions will play a significant part of the pot of assets to be divided during separation.
According to a report from the International Longevity Centre, the number of ‘silver-splitters’ increased by 85% between 1990 and 2012, with an estimated 22,000 divorces predicted by 2037 for the over 60s age-group.
Financial experts are concerned that many women of this age are failing to take their partner’s pension into account when negotiating divorce settlements, impacting significantly on their post-retirement income and resources. When accounting for individual and joint assets it’s vital to include pensions in financial negotiations as the report shows a tendency for property to be prioritised over pensions, resulting in many women over 60 being shortchanged by the outcome of divorce.
Kate Smith, Head of Pensions at Aegon explains the risk of dismissing the worth of pensions in favour of staying in the family home:
“Divorce can be devastating, both emotionally and financially at any stage of life. The impact on retirement plans can be particularly difficult for women who typically build up lower pension pots than men, partly due to career breaks and lower average salaries.
“Pensions, just like other assets such as houses and ISAs can be taken into account for financial settlements. It’s common for women with school age children to keep the family home, and in return their ex keeps their pension intact. If this happens you will lose the right to any spouse’s pension.
“Although this may work well in the shorter term, it could limit your plans for retirement, if you don’t take pension saving into your own hands as soon as possible. The value of a pension should not be underestimated when going through a divorce. Pensions are valuable assets, and may be worth as much as your home. It’s important that you fully understand how pensions built up by you and your ex are likely to be affected.”
People may also be overlooking their partner’s pension due to the assumption that it will not be worth enough to be significant in a financial settlement. However, for the over 60s, final salary schemes may offer considerable lump sums to those requesting a cash transfer. Underestimating the worth of a pension may leave one party with a far lower share of the pot, as MD of Wealth for Women Mary Waring notes: “The transfer value of a defined pension may be more than 30 times the annual income. So, if your other half has built up a final salary pension of just £7,000 a year, it could be worth more than the average UK house price of £222,000 recorded at the end of 2016. Someone with £30,000 of final salary pension could be sitting on an asset worth £1m.
“This shows just how valuable the pension is. It’s very easy to discount the importance of a payment which may not be available to you for a number of years in the future. But when you understand the current value of that income, you then realise how vital it is for you take a share of that value, rather than have all your share of the joint assets tied up in a house.”
There are three main ways of splitting the assets from a pension during divorce, each with their own pros and cons, depending on the circumstances:
Pension Sharing: The most common method of division, this approach splits the pension in two, once both parties have agreed on the proportion each should receive. This allows couples to include the pension in a final financial settlement as a lump sum.
Pension Offsetting: In this case, the worth of the pension is balanced against another asset of equal value – for example a jointly-owned property – with each party claiming one or other item. As mentioned above, it’s important to ensure that the full value of a pension is defined before you choose this option, since maintaining a large family home may not be realistically feasible on a post-divorce income, and the long-term benefits of a pension may well outweigh the face value of the property.
Pension Earmarking: This involves assigning a portion of the pension to another party when it comes into payment. This may not be suitable for couples who are planning on retiring at different times (since one would be left without an income for a period of time), or those who are hoping for a clean break, as this arrangement requires both parties to stay in contact with one other regarding the terms of the agreement.
In all cases, the first step is to discuss your options with a solicitor so that you can decide on the right approach for your situation. To speak to an experienced family lawyer about pensions, separation or financial settlements, get in touch with us at Frances Lindsay & Co.divorce, financial settlement, pensions, separation, silver splitters