7 Important Things to Consider about Pensions When you get Divorced

Pensions can be complicated at the best of times, but add divorce into the mix and things can become even harder to get your head around.

Since pensions are often among the most valuable assets in a divorce, often only bettered by the family home, it’s important to understand how your pension savings may be divided when you get divorced.

Here are seven important things to understand when it comes to dividing your pension savings on divorce.

1. Pensions are considered as joint assets

Many people don’t realise that a pension is considered a joint asset in a marriage. This is the case even when only one spouse has accrued pension savings.

When discussing the division of assets, women are sometimes advised to focus on the marital home, especially when there are children still living at home.

While opting for one of you to take the house while the other takes the pension pot might seem like a good solution, when it comes to retirement, the partner who took the property could find themselves with no income to live on.

If this happens, the person who kept the property may end up having to sell the house to generate the income needed in retirement.

It’s important that both sides consider any pension assets, and that these are distributed fairly.

2. Pensions can often be the biggest asset in a divorce

Pensions are often the second most valuable asset after the family home. Sometimes, pension funds can be worth even more than the house you share. So, make sure you don’t overlook this when discussing settlement arrangements.

Start by getting a valuation for your pension when you’re discussing separation. This must be requested by the member of the pension scheme or the person who set up the pension.

In Scotland, only pension rights built up during the marriage or civil partnership will be regarded as marital assets. But in the rest of the UK, all pension assets are usually treated as marital assets.

A defined benefit pension can be particularly valuable as it is based on how many years you’ve worked and the salary you earned. If either of you have a defined benefit pension, you’ll need to think carefully and plan how it will be split.

Where pensions are involved in your financial settlement, particularly defined benefit pensions, it’s worth getting advice from an expert financial planner. We can help you understand how to split the assets fairly and illustrate how the division of your pension funds will affect your future life plans with cashflow modelling.

3. Many women are reliant on pension income from a partner

Men have substantially more private pension wealth than women.

A study by the University of Manchester revealed huge gaps in the value of pensions between divorcing men and women.

For those aged 65 to 69, median pension wealth for men is a little over £212,000, but for women it’s only £35,000.

The study also found that married men have the most pension wealth. Married men aged 45 to 54 have median pension wealth of about £86,000 compared with £40,000 for married women. At 55-64, the disparity is £185,000 compared with £55,800.

6. You should start topping your pension up after your divorce

If you lose a portion of your pension savings as part of your divorce settlement, it’s important to start saving to make up the difference as soon as possible.

We can help you visualise what the sum lost will mean for you and your retirement plans and create a plan to help you rebuild your retirement savings.

For high earners, Annual Allowances and Lifetime Allowance problems can make this tricky to navigate.

7. Talk to a financial planner and remain on target for retirement

Seeking expert advice and assistance will help you to rebuild your resources and limit the negative effects of giving away a portion of your pension.

With the new flexibilities that pensions can provide, they can be key to creating a great outcome for both parties.

If you have need advice on how to split your assets on divorce, we can help.

To learn more about how we can help you protect your financial interests when you’re getting divorced, or if you want help planning your new future following separation, get in touch. Email hello@firstwealth.co.uk or call 020 7467 2700.

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