There is a correlation between being divorced and being less prepared for retirement, especially for women, research from Scottish Widows has shown.
Whilst 12% of divorced men say they are unable to save anything toward their pension, that figure doubles to 24% for divorced women. Meanwhile, 40% of divorced women say their retirement prospects worsened after divorce, with just 19% of men saying the same.
But why are women losing out on so much after the breakdown of a marriage?
Women have fewer saving opportunities
Of both married and divorced women, just over half (52%) have adequate savings to support their lifestyle in retirement. In comparison, 59% of men say the same.
On average, women make fewer contributions to pension funds and National Insurance than men. This happens for a range of reasons, including:
- Working less hours to take care of children
- Taking maternity leave
- Time away from work to care for relatives.
Contributing less to a pension fund, means that there will be less money available when it is needed.
The State Pension can be a huge help for women who have not been able to save into a pension pot regularly or at a substantial rate. But this is only available to those people who have made the required contributions or credits (currently 30 years).
When a couple has been saving together for several years before going their separate ways in life, it can become complicated, and can leave one party financially worse off than the other.
Assumptions about divorce
Scottish Widow’s research shines a light on the general assumptions surrounding pensions and divorce. The average married couple’s combined retirement fund is worth £132,000, however, when asked what they would be concerned about during a divorce settlement, pensions came last, below:
- Jointly owned property at 56%
- Combined savings at 36%
- Pet ownership at 13%
In fact, just 9% of people said that they would make getting a fair share of any pensions, a priority.
The reasoning behind this could be a simple lack of information. For many married people, knowing what happens to pension funds during a divorce is not necessary information, which leads to:
- 48% of women saying that they have no idea how pensions are handled during divorce settlements
- 22% believing that each partner keeps their own contributions
- 15% believing that pension funds are split 50/50 in all circumstances
Of course, the reality is significantly more complex than this.
Reality of divorce
The data shows a reality which is much different to the presumptions of many married people:
- 71% of divorced couples did not discuss their pensions at all during their settlement
- 16% of women lost access to shared pension pots completely during divorce proceedings
- 10% of divorced women are completely reliant on their State pension after getting divorced
- Only 11% of divorces result in a pension sharing order
These are clear indicators that more information is needed to ensure that steps are taken during marriage to protect the pension contributions made by each partner in the event of divorce.
Staying informed and prepared
Very few people get married with the intention of getting divorced, but preparation is the key to survival. Making your finances future-proof offers great peace of mind as well as financial benefits, should things take a downward turn.
There are three key steps to take:
- Communicate: Making decisions together is one of the many great things about marriage. It can be easy to shy away from ‘what if’ conversations, but it is better to discuss what you will do, should the relationship break down whilst you are both in a logical place, emotionally. Waiting until the divorce is underway can result in emotionally charged and damaging decisions being made by one, or both of you. You can then have these decisions put into writing and made legally binding by a solicitor.
- Keep your pensions on an equal level: It’s not completely divorce-proof, but it is certainly easier than trying to understand why one of you deserves to take more than the other.
- Seek professional advice: Talking to a financial adviser gives you a personal and tailored service, which will keep your married finances on track, whilst putting provisions in place to protect both parties, should the relationship break down in the future.
For more information, or for advice on pensions, divorce and marriage, contact us on 0115 9338433.