Are pensions important in divorce? The short answer is yes, yet still so many people fail to take pensions into consideration when reaching a financial settlement after splitting up from their spouse. The whole area of pensions is complex. No point pretending otherwise. That is why we have pension actuaries and pension experts and specialist pension financial advisors. And that may be why many people just don’t deal with them when they have so much else on their plate during a divorce.
Here’s the thing though: they are complex and some people find them boring, but they can make a huge difference to a financial settlement. A pension, after all, can be a couple’s richest asset.
In this year’s Budget, the Government announced it wants to give us all more choice about what we can do with our pensions. Currently, if you are over 60 and have less than £18,000 pension savings in total, you can cash the lot rather than receiving a measly sum for who knows how long. If you have more than £18,000, you are limited in how much capital you can have and unless you have a guaranteed income of more than £20,000 a year, you are limited in how much income you can draw each year.
The changes are that from 2015 and from age 55, you can take as much capital as you want and 25% of the pot will be tax free. There is more flexibility between capital, income and keeping the pension growing.
People are living longer, more people are living into retirement and more couples are divorcing closer to their retirement or even after retirement. Greater flexibility surrounding both state and private pensions, means more options for that all important financial settlement.
Great – but how many of us have much of a clue about what our pensions are worth? Based on my experience, not very many, and of those that do know, or at least have an idea, most are men.
Most women, no matter their age, have less in pensions that their husband. In civil partnerships and same sex marriages the parent, spouse or partner, who stays home and makes the home, who supports the higher earner, who looks after the kids, will have less pension than the other. But they won’t have a shorter retirement, just a poorer one. Yes, I know we are all busy and all having to work longer, but when we do retire do we want to have a miserable poor retirement, unable to have holidays, unable to spoil the grandkids or great-grandkids?
When a relationship fails the two main assets are the home and the pensions. Most everyone has some state pension, some have an additional state pension and many have a work pension, or private pension, or several.
Often the pensions are worth more than the money in the home. Yet they are often ignored in mediation and in discussions between a separating couple and even in divorce. In the same way that, if you own a property and are separating, you want to know how much money is in the house, you should – you must – be asking what the pensions are worth. Fail to do this and you risk a miserable, poor retirement.
Divorce lawyer, Thetford