PENSIONS AND DIVORCE
If you are considering divorce you should think carefully about your pension plans. The decisions you take now could have a significant impact on your future income in retirement.
As part of divorce proceedings you have the right to ask the court how to divide the assets. This is called an application for a financial order. This article examines the key points you need to think about when assessing pensions as part of your divorce settlement.
- How divorce affects your pensions
- State pensions and divorce
- What next
Pensions and divorce
The Courts have a power to include pension assets in the financial order, and can deal with your pension assets in a number of ways. Read more on pensions and divorce. Despite this, pension orders are rarely used in divorce cases. The Judicial and Court Statistics for 2011 show there were only 10,000 pension orders out of 120,000 divorces that year. Fewer than 8% of divorces included a pension order and the figures have not changed much in the last 5 years. This means people are either not taking pensions into account or are dealing with them in other ways.
One key factor associated with poverty in later life is pension provision. Divorced women over 65 are one of the poorest sections of society in England & Wales and numbers are predicted to rise. Although most women return to work at some point after having children, this can be low-paid, part-time and women often have gaps in their pension contributions.
It is important that you consider pensions carefully with your solicitor at the time of divorce. You should have full information about the values of both your pensions and your spouse’s pensions so you can make an informed decision.
– Carol Toulson
It is very important for you to consider your pensions at the time of divorce. What will your income be after retirement? There are very good reasons why a pension order might not made at the time of divorce. It may be keeping the home is your priority. Despite this it is important that you consider this issue carefully with your solicitor at the time of divorce and you have full information about the values of both your pensions and your spouse’s pensions so you can make an informed decision.
It may be necessary or advisable to obtain expert advice from an Independent Financial Adviser or an actuary and your solicitor will advise you if this is necessary.
State pensions and divorce
Due to increasing life expectancy State pensions have become less affordable. As a result the Treasury had to make changes to the State pension age.
If you are a women born after 6/4/1950 and a man after 5/12/1953 the State pension age is increasing as follows:
- For women
- To age 65 from 2018;
- For both men and women
- To 67 in 2026
- To age 66 from October 2020
The State pension age is expected to increase further to 68 in the mid 2030s. State pension age is to be reviewed five-yearly and is expected to increase along with life expectancy.
To be eligible for a full basic state pension under the current rules, you need to have worked or been credited with a minimum of 30 years National Insurance Contributions. If you have less than 30 years the amount of pension is reduced on a pro-rata basis. There is no minimum figure.
In many instances divorces, usually the former wife, do not have sufficient National Insurance Contributions to receive the full state pension. A pension share order may therefore provide a solution so a party who does not have adequate pension provision. State pension should also be considered and full information obtained.
Pension share orders are one of the 4 main orders available to a court. The other 3 are property adjustment orders, lump sum orders and periodical payments orders.
The Court has a wide range of powers to deal with financial applications. I would always advise you to obtain full information, take good legal and financial advice at the time to make sure you secure the best possible settlement for your future.
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About Dan Woodruff
Certified Financial Planner & Chartered Wealth Manager at Woodruff Financial Planning
Financial Planning helps you to navigate and anticipate significant life changes. I want to help you to ensure your money is managed wisely to give you the financial security that will fund the future and lifestyle that is important to you.