It’s been a year when many of us have taken stock of our lives, reassessed what’s important and, in some circumstances, considered major life changes. The coronavirus pandemic has been a tipping point for many people, adding new stresses and strains, and sometimes exacerbating tensions.
Our closest relationships have borne the greatest brunt of this and as a result it is anticipated that the UK will see an increase in couples divorcing in the next year. Citizens Advice says the enormous strain caused by the pandemic, led to 25% more views of divorce information on its website in the first weekend in September, compared with the same date in 2019.
One in four people who divorce is over 50 years old and this age group is more likely to suffer a financial impact on their retirement as a result. Our research shows that just 3% of people take proper financial advice when divorcing, yet a third of people who divorce over the age of 50 ultimately believe the outcome to be financially unfair.
The over-50s are four times more likely to seek advice from friends than a financial adviser, when going through a divorce, but tellingly, 20% of people surveyed said, on reflection, their divorce had made them more likely to seek professional financial advice in the future.
Pensions can get overlooked in the financial settlement
The research found that there’s a tendency for over-50s to not consider their pensions and retirement savings, when agreeing a financial split. Just 12% considered pensions when dividing assets, and 24% actively waived their rights to the value of them. And yet, the pension pot can be the biggest asset after the family home, so it’s really important to make sure this is taken into account, when dividing up the assets.
Debra Price is an expert in this field, as a Professor of Social Gerontology at the University of Manchester, and co-author of ‘A Guide to the Treatment of Pensions on Divorce’. She believes divorcing couples shouldn’t take the risk of going it alone on their finances.
“The whole issue of dividing pensions on divorce is hugely problematic. Pensions are really complex, and people are generally under enormous strain when going through a divorce – they just don’t want to think about it, which results in many unfair outcomes. People are reluctant to consult financial advisers, who could help considerably, not only on the division of assets on divorce, but also with long-term planning following divorce. There is a real role for experts in this space.”
Make sure you take advice on sharing the pension pot
Sara McLeish, CEO of Legal & General Financial Advice, understands the whirlwind of emotional and practical hoops divorcing couples have to jump through, but believes it’s vital people get financial advice and properly consider all their assets, when splitting up.
“People going through divorce are too often unaware of what they are entitled to, and often overlook, or are unaware of, the key steps to financially separate from their partners. This is particularly true when it comes to pensions, which could leave people worse off in retirement.
Things to consider
- Understand how pension assets can be shared. A useful starting point is the Money Advice Service. It outlines the options for how different types of pension can be divided. This can be a complex area, and a family lawyer will be able to make sure that you have the right agreement in place to formalise this.
- Get free guidance. The Pensions Advisory Service is an independent body offering impartial support on pension issues. It’s a good place for information on this topic. It offers a free Pension and Divorce Guidance service over the telephone. It’ll run through the options, what you need to think about, and things you should ask. It can also point you in the right direction for seeking regulated financial advice. You can find out more and book an appointment on its website.
- Ask a financial adviser. They can help ensure that assets are divided up in the most tax-efficient way, and explain how best to invest any proceeds from a divorce settlement.
- Review your beneficiaries. Post-divorce it’s a good idea to review your will and other documents, such as life insurance policies, so that you’re confident your estate will be divided up in the way you want. And make sure the executor(s) know where to find all your paperwork.