Divorcees and the need for more informal pension sharing

If you have divorcing clients, consider urging them to seek financial advice during the process, as statistics show women are ending up with a significant shortfall in pension savings.

Research from Royal London identified that the average 50+ year-old female divorcee has a pension wealth of £131,000. In comparison, the average married couple has £454,000; more than three times as much. The shortfall isn’t offset by a greater share of property equity either, as you might assume. On average, divorced women own £169,000 of housing wealth, compared to £359,000 for a married couple.

The disparity in pension savings is often attributed to mothers taking time out of their career to raise children, sometimes returning to work in a part-time role to balance commitments. With increasing attention on the gender pay gap, this situation might change in future. But, the figures speak for themselves… The Chartered Insurance Institutes (CII) recently found that:

  • Women aged 25 taking a five-year career break to raise children will accumulate a pension wealth a third smaller than their male counterparts
  • Nearly a third of women in their late 50s are caring for an elderly relative, impacting their ability to earn and save towards retirement
  • Over time, by age 65 women have the equivalent of just one-fifth of a male’s pension wealth

An unspoken issue

The CII research also flagged that more than 70% of couples don’t discuss their pensions at all prior to divorce. The same study, then goes on to explain that 40% of women aged 55-70 are heavily dependent on their partner’s income, so this really is an issue that needs addressing.

Caroline Abrahams, Age UK’s Charity Director, explained: “It is extraordinary and frankly unacceptable that so many women are potentially missing out on significant sums of money when they divorce, sometimes without even realising they have lost future income which probably should have been theirs.”

So, during what can already be a financially challenging and emotional time, how can we help secure both clients’ financial future?

Engagement with financial planning

The reality is, often within legal, accountancy and financial planning professions, there are a number of complementary areas. Collaboratively, especially around divorce, we can work together to provide the best outcome in the circumstances and plan towards clients’ aspirations.

As financial planners, we really don’t focus on selling products. We focus on getting to know client’s challenges and goals, helping them to plan beyond the immediate, turbulent situation. Anyone going through a divorce will find legal advice essential, but financial planning can help plan towards their long-term aspirations.

Steve Webb, Royal London Director of Policy, summed up the situation quite neatly, saying: “When couples split up there is an understandable focus on family issues and on highly visible assets such as the family home. But very often, one partner will have pension rights which are less visible, but can be just as valuable and people need to take expert financial advice on this crucial issue.”

At Sovereign, some of our main areas of expertise include pensions, divorce and tax planning. We also work closely with family lawyers on divorce cases; in particular our Director and Chartered Financial Planner Mark Hibbitt, who is also an affiliate member of Resolution, the largest organisation of family lawyers in the UK.

Resolution’s detailed code of practice underpins what comes naturally to us, but “helping clients understand and manage the potential long-term financial and emotional consequences of decisions” really stands out and is exactly what we’re here to do. If you have any clients going through a divorce that might benefit from an introduction, please don’t hesitate to put them in touch.

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